Encrypted File System (EFS) is a feature built into Windows 2000, XP and 2003 that allows users to securely encrypt files and folders. You can increase this level of security in Windows XP and 2003 by implementing a more secure encryption algorithm.

By default, Windows 2000, XP and Server 2003 use the DESX algorithm to encrypt data in EFS. Windows XP and 2003 systems allow you to upgrade EFS and use the 3DES encryption algorithm instead of DESX. This can be accomplished in two ways, via Group Policy or a registry edit. When enabling 3DES using Group Policy both IPSec and EFS will use the 3DES algorithm. If you do not want to use Group Policy, or do not want to modify the IPSec configuration, you can enable this in the registry instead. Open up the registry and drill down to; this will cause both EFS and IPsec to use 3DES. If you want to use 3DES only for EFS, you have to open the registry for editing and drill down to

HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\EFS

Create a new REG_DWORD named AlgorithmID and set the value to 0x6603 (in HEX). Restart the computer and it will use the 3DES algorithm for EFS.