Fyi, I can confirm this happening in Windows Vista (Business) and Windows 7 Professional in WORKGROUP mode (as both a client and a server). I am not totally sure if this is a Superuser question or a ServerFault question. So there are two PCs, let's call them C (client) and S (server). Both servers have a user called U with the same password. Both C and S has the same private/public key pair for EFS. S shares a folder F with U given full permission. Also locally, the user U has the full permission on F. Now, U, from C, connects to F at the server S, everything works totally fine. I can read,write, delete files and create/delete folders in S. Things go weird from here. I encrypt the folder F in S. I can delete/modify files fine (so the files in F decrypted OK). However, U from C, cannot create a folder, or create a file getting Access Denied. But this Access Denied is very special. It takes over 10 seconds at C to receive the error and the explorer freezes while trying to create a folder, eventually returning error. In S, I can watch the folder created at the same time, and what I see is "New Folder" blinking like crazy and eventually disappearing when the client receives the error. i.e. it's created and deleted in a really rapid manner. What I do not understand is that permissions look fine, I can modify/delete files, and it looks like there is no problem with EFS because I can read/write files fine. Yet it fails to create a file or a folder. Any help is appreciated. Thanks, wbkang