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Let's say that you mounted encfs:

 encfs ~/cryptfoo ~/foo

Then try to create another encfs inside the mount point:

 encfs ~/cryptfoo2 ~/foo/foo2

It will fail.

Why does this occur? I am using Ubuntu 10.04. My encfs is version 1.5. Does this have something to do with fuse?

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It works for me if I mount the first encfs with -o allow_other, and the second one with -o nonempty. You may need to add user_allow_other to /etc/fuse.conf and add your user to the fuse group if you're not doing this as root. This is with encfs 1.5.2 on Ubuntu 10.04 in pre-configured paranoia mode.

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