You know, with all the talk lately about the courts ordering people to decrypt their hard drives (here), now seems like a good time to look into something like this. It's free, open source and works on-the-fly.
In case an adversary forces you to reveal your password, TrueCrypt provides and supports two kinds of plausible deniability:
- Hidden volumes (see the section Hidden Volume) and hidden operating systems (see the section Hidden Operating System).
- Until decrypted, a TrueCrypt partition/device appears to consist of nothing more than random data (it does not contain any kind of "signature" ). Therefore, it should be impossible to prove that a partition or a device is a TrueCrypt volume or that it has been encrypted (provided that the security requirements and precautions listed in the chapter Security Requirements and Precautions are followed).