WhisperCore Beta for Android encrypts your data for free, only works on the Nexus S for now
WhisperCore is a new app for Android that lets you encrypt your system disk and/or SD card. It's free for personal use, and pricing for commercial use varies according to the size of deployment. WhisperCore uses 256 bit AES encryption, a popular choice in the encryption space, also seen in tools such as TrueCrypt and Linux Unified Key Setup.
Once you install the app, you set a passphrase that will be used to generate the key that's then used to encrypt all the data on the disk. The lack of full data encryption on Android is something many companies are basing future products upon, but WhisperCore may have a head start.
The app is in beta stage right now, and it has an important caveat you need to be aware of: it only runs on the Google Nexus S. This will obviously change in the future, but at the moment having one single hardware environment probably makes it a lot easier to track bugs. Also, the ability to encrypt SD cards is pretty much useless at this point, with the Nexus S not having an SD card slot.
If you feel like giving WhisperCore a try, you can download it from the developer's site. Note its beta state though, so expect quite a few bugs and quirks, and as such perhaps refrain from trying it on your main phone just yet, unless you're the adventurous type.