Community Newsletter: Q&A forum: Encrypting and password protecting files and folders on my PC

TrueCrypt allows you to nest containers, or embed a container within a container. This gives you the advantage of use one password to open the outer container only (which would contain a few files and a lot of blank space), or using a second password to open the inner container.

The beauty of the setup is that the outer container's "blank space" (which is actually the inner container) is totally encrypted and looks like random data. There is no header data, no indication whatsoever that there is any data in that space. So you could simply say that the outer container is the "only" container. Plausible deniability.

Only downside is that if you are made to open the outer container (denying that you know about the inner container), you could be forced to overwrite the inner container, thus destroying it. The outer container has complete access to overwrite the inner container unless you specifically tell it not to (in which case you need to supply the inner container password). So if you're using this setup, keep a second copy of your nested container somewhere else.