A patch to the Linux source
tree that adds cryptography
to the kernel.
I have no idea of the licensing in the US, as I'm a European, but it's worked for me.
The IKP provides encrypted filesystem support along with encrypted IP tunnelling support, as is available fron ftp.kerneli.org.
Useful HOWTOs are:
Linux Encryption HOWTO: a discussion of the IKP itself, also refers you to other crypto projects such as FreeSWAN and CFS.
Loopback Encrypted Filesystem HOWTO: useful walkthrough on how to set up an encrypted filesystem.