A group of researchers from the Chinese University of Hong Kong have devised a way to store data within live bacteria. The encoding mechanism is elegant as they simply convert computer data (eg. ASCII text) into Quaternary numbers (base-4), which then allows them to map that data onto the four basic building blocks of DNA: A, G, T and C. Once the data has been converted into a full DNA sequence, it is compressed (using DEFLATE), before being written into a living cell (a much more complex process).
The team claims to do encryption and decryption (dubbed Bioencryption), however from their slides they only seem to be performing encoding and decoding from binary to DNA (awaiting further details). Naturally, the source binary data could simply be encrypted using a block-cipher like AES prior to converting it into the base pairs.
They also claim to be able to store 900TB (terabytes!) in just 1 gram of E.coli bacteria cells (~10 million), which also seems like a stretch to me. Particularly when taking into account some of the calculations they make in their presentation.
The slides for their presentation are available here (PDF).