A physical encryption key system binds an encryption key to a physical key and denies decryption of secured information if the physical key is not present to a particular computing device. In one implementation, the physical key comprises a convenient removable pen drive on which a .NET isolated storage space is created to store the encryption key. The .NET isolated storage space can only be accessed by concurrence of the same user, domain, computing device, application, and physical key that participated in creating the isolated storage space. The user enjoys the security of knowing that protected information cannot be decrypted without the physical key; cannot be decrypted without the user's credentials even if the physical key is stolen; and cannot be decrypted if the protected information is pirated to a different computing device.