diff --git a/internal/crypto/aes.go b/internal/crypto/aes.go
new file mode 100644
index 0000000..2209136
--- /dev/null
+++ b/internal/crypto/aes.go
@@ -0,0 +1,294 @@
+package crypto
+
+import (
+	"crypto/aes"
+	"crypto/cipher"
+	"crypto/rand"
+	"crypto/sha256"
+	"fmt"
+	"io"
+	"os"
+
+	"golang.org/x/crypto/pbkdf2"
+)
+
+const (
+	// AES-256 requires 32-byte keys
+	KeySize = 32
+
+	// GCM standard nonce size
+	NonceSize = 12
+
+	// Salt size for PBKDF2
+	SaltSize = 32
+
+	// PBKDF2 iterations (OWASP recommended minimum)
+	PBKDF2Iterations = 600000
+
+	// Buffer size for streaming encryption
+	BufferSize = 64 * 1024 // 64KB chunks
+)
+
+// AESEncryptor implements AES-256-GCM encryption
+type AESEncryptor struct{}
+
+// NewAESEncryptor creates a new AES-256-GCM encryptor
+func NewAESEncryptor() *AESEncryptor {
+	return &AESEncryptor{}
+}
+
+// Algorithm returns the algorithm name
+func (e *AESEncryptor) Algorithm() EncryptionAlgorithm {
+	return AlgorithmAES256GCM
+}
+
+// DeriveKey derives a 32-byte key from a password using PBKDF2-SHA256
+func DeriveKey(password []byte, salt []byte) []byte {
+	return pbkdf2.Key(password, salt, PBKDF2Iterations, KeySize, sha256.New)
+}
+
+// GenerateSalt generates a random salt
+func GenerateSalt() ([]byte, error) {
+	salt := make([]byte, SaltSize)
+	if _, err := io.ReadFull(rand.Reader, salt); err != nil {
+		return nil, fmt.Errorf("failed to generate salt: %w", err)
+	}
+	return salt, nil
+}
+
+// GenerateNonce generates a random nonce for GCM
+func GenerateNonce() ([]byte, error) {
+	nonce := make([]byte, NonceSize)
+	if _, err := io.ReadFull(rand.Reader, nonce); err != nil {
+		return nil, fmt.Errorf("failed to generate nonce: %w", err)
+	}
+	return nonce, nil
+}
+
+// ValidateKey checks if a key is the correct length
+func ValidateKey(key []byte) error {
+	if len(key) != KeySize {
+		return fmt.Errorf("invalid key length: expected %d bytes, got %d bytes", KeySize, len(key))
+	}
+	return nil
+}
+
+// Encrypt encrypts data from reader and returns an encrypted reader
+func (e *AESEncryptor) Encrypt(reader io.Reader, key []byte) (io.Reader, error) {
+	if err := ValidateKey(key); err != nil {
+		return nil, err
+	}
+
+	// Create AES cipher
+	block, err := aes.NewCipher(key)
+	if err != nil {
+		return nil, fmt.Errorf("failed to create cipher: %w", err)
+	}
+
+	// Create GCM mode
+	gcm, err := cipher.NewGCM(block)
+	if err != nil {
+		return nil, fmt.Errorf("failed to create GCM: %w", err)
+	}
+
+	// Generate nonce
+	nonce, err := GenerateNonce()
+	if err != nil {
+		return nil, err
+	}
+
+	// Create pipe for streaming
+	pr, pw := io.Pipe()
+
+	go func() {
+		defer pw.Close()
+
+		// Write nonce first (needed for decryption)
+		if _, err := pw.Write(nonce); err != nil {
+			pw.CloseWithError(fmt.Errorf("failed to write nonce: %w", err))
+			return
+		}
+
+		// Read plaintext in chunks and encrypt
+		buf := make([]byte, BufferSize)
+		for {
+			n, err := reader.Read(buf)
+			if n > 0 {
+				// Encrypt chunk
+				ciphertext := gcm.Seal(nil, nonce, buf[:n], nil)
+
+				// Write encrypted chunk length (4 bytes) + encrypted data
+				lengthBuf := []byte{
+					byte(len(ciphertext) >> 24),
+					byte(len(ciphertext) >> 16),
+					byte(len(ciphertext) >> 8),
+					byte(len(ciphertext)),
+				}
+				if _, err := pw.Write(lengthBuf); err != nil {
+					pw.CloseWithError(fmt.Errorf("failed to write chunk length: %w", err))
+					return
+				}
+				if _, err := pw.Write(ciphertext); err != nil {
+					pw.CloseWithError(fmt.Errorf("failed to write ciphertext: %w", err))
+					return
+				}
+
+				// Increment nonce for next chunk (simple counter mode)
+				for i := len(nonce) - 1; i >= 0; i-- {
+					nonce[i]++
+					if nonce[i] != 0 {
+						break
+					}
+				}
+			}
+			if err == io.EOF {
+				break
+			}
+			if err != nil {
+				pw.CloseWithError(fmt.Errorf("read error: %w", err))
+				return
+			}
+		}
+	}()
+
+	return pr, nil
+}
+
+// Decrypt decrypts data from reader and returns a decrypted reader
+func (e *AESEncryptor) Decrypt(reader io.Reader, key []byte) (io.Reader, error) {
+	if err := ValidateKey(key); err != nil {
+		return nil, err
+	}
+
+	// Create AES cipher
+	block, err := aes.NewCipher(key)
+	if err != nil {
+		return nil, fmt.Errorf("failed to create cipher: %w", err)
+	}
+
+	// Create GCM mode
+	gcm, err := cipher.NewGCM(block)
+	if err != nil {
+		return nil, fmt.Errorf("failed to create GCM: %w", err)
+	}
+
+	// Create pipe for streaming
+	pr, pw := io.Pipe()
+
+	go func() {
+		defer pw.Close()
+
+		// Read initial nonce
+		nonce := make([]byte, NonceSize)
+		if _, err := io.ReadFull(reader, nonce); err != nil {
+			pw.CloseWithError(fmt.Errorf("failed to read nonce: %w", err))
+			return
+		}
+
+		// Read and decrypt chunks
+		lengthBuf := make([]byte, 4)
+		for {
+			// Read chunk length
+			if _, err := io.ReadFull(reader, lengthBuf); err != nil {
+				if err == io.EOF {
+					break
+				}
+				pw.CloseWithError(fmt.Errorf("failed to read chunk length: %w", err))
+				return
+			}
+
+			chunkLen := int(lengthBuf[0])<<24 | int(lengthBuf[1])<<16 |
+				int(lengthBuf[2])<<8 | int(lengthBuf[3])
+
+			// Read encrypted chunk
+			ciphertext := make([]byte, chunkLen)
+			if _, err := io.ReadFull(reader, ciphertext); err != nil {
+				pw.CloseWithError(fmt.Errorf("failed to read ciphertext: %w", err))
+				return
+			}
+
+			// Decrypt chunk
+			plaintext, err := gcm.Open(nil, nonce, ciphertext, nil)
+			if err != nil {
+				pw.CloseWithError(fmt.Errorf("decryption failed (wrong key?): %w", err))
+				return
+			}
+
+			// Write plaintext
+			if _, err := pw.Write(plaintext); err != nil {
+				pw.CloseWithError(fmt.Errorf("failed to write plaintext: %w", err))
+				return
+			}
+
+			// Increment nonce for next chunk
+			for i := len(nonce) - 1; i >= 0; i-- {
+				nonce[i]++
+				if nonce[i] != 0 {
+					break
+				}
+			}
+		}
+	}()
+
+	return pr, nil
+}
+
+// EncryptFile encrypts a file
+func (e *AESEncryptor) EncryptFile(inputPath, outputPath string, key []byte) error {
+	// Open input file
+	inFile, err := os.Open(inputPath)
+	if err != nil {
+		return fmt.Errorf("failed to open input file: %w", err)
+	}
+	defer inFile.Close()
+
+	// Create output file
+	outFile, err := os.Create(outputPath)
+	if err != nil {
+		return fmt.Errorf("failed to create output file: %w", err)
+	}
+	defer outFile.Close()
+
+	// Encrypt
+	encReader, err := e.Encrypt(inFile, key)
+	if err != nil {
+		return err
+	}
+
+	// Copy encrypted data to output file
+	if _, err := io.Copy(outFile, encReader); err != nil {
+		return fmt.Errorf("failed to write encrypted data: %w", err)
+	}
+
+	return nil
+}
+
+// DecryptFile decrypts a file
+func (e *AESEncryptor) DecryptFile(inputPath, outputPath string, key []byte) error {
+	// Open input file
+	inFile, err := os.Open(inputPath)
+	if err != nil {
+		return fmt.Errorf("failed to open input file: %w", err)
+	}
+	defer inFile.Close()
+
+	// Create output file
+	outFile, err := os.Create(outputPath)
+	if err != nil {
+		return fmt.Errorf("failed to create output file: %w", err)
+	}
+	defer outFile.Close()
+
+	// Decrypt
+	decReader, err := e.Decrypt(inFile, key)
+	if err != nil {
+		return err
+	}
+
+	// Copy decrypted data to output file
+	if _, err := io.Copy(outFile, decReader); err != nil {
+		return fmt.Errorf("failed to write decrypted data: %w", err)
+	}
+
+	return nil
+}
diff --git a/internal/crypto/aes_test.go b/internal/crypto/aes_test.go
new file mode 100644
index 0000000..067ec66
--- /dev/null
+++ b/internal/crypto/aes_test.go
@@ -0,0 +1,232 @@
+package crypto
+
+import (
+	"bytes"
+	"crypto/rand"
+	"io"
+	"os"
+	"path/filepath"
+	"testing"
+)
+
+func TestAESEncryptionDecryption(t *testing.T) {
+	encryptor := NewAESEncryptor()
+
+	// Generate a random key
+	key := make([]byte, KeySize)
+	if _, err := io.ReadFull(rand.Reader, key); err != nil {
+		t.Fatalf("Failed to generate key: %v", err)
+	}
+
+	testData := []byte("This is test data for encryption and decryption. It contains multiple bytes to ensure proper streaming.")
+
+	// Test streaming encryption/decryption
+	t.Run("StreamingEncryptDecrypt", func(t *testing.T) {
+		// Encrypt
+		reader := bytes.NewReader(testData)
+		encReader, err := encryptor.Encrypt(reader, key)
+		if err != nil {
+			t.Fatalf("Encryption failed: %v", err)
+		}
+
+		// Read all encrypted data
+		encryptedData, err := io.ReadAll(encReader)
+		if err != nil {
+			t.Fatalf("Failed to read encrypted data: %v", err)
+		}
+
+		// Verify encrypted data is different from original
+		if bytes.Equal(encryptedData, testData) {
+			t.Error("Encrypted data should not equal plaintext")
+		}
+
+		// Decrypt
+		decReader, err := encryptor.Decrypt(bytes.NewReader(encryptedData), key)
+		if err != nil {
+			t.Fatalf("Decryption failed: %v", err)
+		}
+
+		// Read decrypted data
+		decryptedData, err := io.ReadAll(decReader)
+		if err != nil {
+			t.Fatalf("Failed to read decrypted data: %v", err)
+		}
+
+		// Verify decrypted data matches original
+		if !bytes.Equal(decryptedData, testData) {
+			t.Errorf("Decrypted data does not match original.\nExpected: %s\nGot: %s",
+				string(testData), string(decryptedData))
+		}
+	})
+
+	// Test file encryption/decryption
+	t.Run("FileEncryptDecrypt", func(t *testing.T) {
+		tempDir, err := os.MkdirTemp("", "crypto_test_*")
+		if err != nil {
+			t.Fatalf("Failed to create temp dir: %v", err)
+		}
+		defer os.RemoveAll(tempDir)
+
+		// Create test file
+		testFile := filepath.Join(tempDir, "test.txt")
+		if err := os.WriteFile(testFile, testData, 0644); err != nil {
+			t.Fatalf("Failed to write test file: %v", err)
+		}
+
+		// Encrypt file
+		encryptedFile := filepath.Join(tempDir, "test.txt.enc")
+		if err := encryptor.EncryptFile(testFile, encryptedFile, key); err != nil {
+			t.Fatalf("File encryption failed: %v", err)
+		}
+
+		// Verify encrypted file exists and is different
+		encData, err := os.ReadFile(encryptedFile)
+		if err != nil {
+			t.Fatalf("Failed to read encrypted file: %v", err)
+		}
+		if bytes.Equal(encData, testData) {
+			t.Error("Encrypted file should not equal plaintext")
+		}
+
+		// Decrypt file
+		decryptedFile := filepath.Join(tempDir, "test.txt.dec")
+		if err := encryptor.DecryptFile(encryptedFile, decryptedFile, key); err != nil {
+			t.Fatalf("File decryption failed: %v", err)
+		}
+
+		// Verify decrypted file matches original
+		decData, err := os.ReadFile(decryptedFile)
+		if err != nil {
+			t.Fatalf("Failed to read decrypted file: %v", err)
+		}
+		if !bytes.Equal(decData, testData) {
+			t.Errorf("Decrypted file does not match original")
+		}
+	})
+
+	// Test wrong key
+	t.Run("WrongKey", func(t *testing.T) {
+		wrongKey := make([]byte, KeySize)
+		if _, err := io.ReadFull(rand.Reader, wrongKey); err != nil {
+			t.Fatalf("Failed to generate wrong key: %v", err)
+		}
+
+		// Encrypt with correct key
+		reader := bytes.NewReader(testData)
+		encReader, err := encryptor.Encrypt(reader, key)
+		if err != nil {
+			t.Fatalf("Encryption failed: %v", err)
+		}
+
+		encryptedData, err := io.ReadAll(encReader)
+		if err != nil {
+			t.Fatalf("Failed to read encrypted data: %v", err)
+		}
+
+		// Try to decrypt with wrong key
+		decReader, err := encryptor.Decrypt(bytes.NewReader(encryptedData), wrongKey)
+		if err != nil {
+			// Error during decrypt setup is OK
+			return
+		}
+
+		// Try to read - should fail
+		_, err = io.ReadAll(decReader)
+		if err == nil {
+			t.Error("Expected decryption to fail with wrong key")
+		}
+	})
+}
+
+func TestKeyDerivation(t *testing.T) {
+	password := []byte("test-password-12345")
+
+	// Generate salt
+	salt, err := GenerateSalt()
+	if err != nil {
+		t.Fatalf("Failed to generate salt: %v", err)
+	}
+
+	if len(salt) != SaltSize {
+		t.Errorf("Expected salt size %d, got %d", SaltSize, len(salt))
+	}
+
+	// Derive key
+	key := DeriveKey(password, salt)
+	if len(key) != KeySize {
+		t.Errorf("Expected key size %d, got %d", KeySize, len(key))
+	}
+
+	// Verify same password+salt produces same key
+	key2 := DeriveKey(password, salt)
+	if !bytes.Equal(key, key2) {
+		t.Error("Same password and salt should produce same key")
+	}
+
+	// Verify different salt produces different key
+	salt2, _ := GenerateSalt()
+	key3 := DeriveKey(password, salt2)
+	if bytes.Equal(key, key3) {
+		t.Error("Different salt should produce different key")
+	}
+}
+
+func TestKeyValidation(t *testing.T) {
+	validKey := make([]byte, KeySize)
+	if err := ValidateKey(validKey); err != nil {
+		t.Errorf("Valid key should pass validation: %v", err)
+	}
+
+	shortKey := make([]byte, 16)
+	if err := ValidateKey(shortKey); err == nil {
+		t.Error("Short key should fail validation")
+	}
+
+	longKey := make([]byte, 64)
+	if err := ValidateKey(longKey); err == nil {
+		t.Error("Long key should fail validation")
+	}
+}
+
+func TestLargeData(t *testing.T) {
+	encryptor := NewAESEncryptor()
+
+	// Generate key
+	key := make([]byte, KeySize)
+	if _, err := io.ReadFull(rand.Reader, key); err != nil {
+		t.Fatalf("Failed to generate key: %v", err)
+	}
+
+	// Create large test data (1MB)
+	largeData := make([]byte, 1024*1024)
+	if _, err := io.ReadFull(rand.Reader, largeData); err != nil {
+		t.Fatalf("Failed to generate large data: %v", err)
+	}
+
+	// Encrypt
+	encReader, err := encryptor.Encrypt(bytes.NewReader(largeData), key)
+	if err != nil {
+		t.Fatalf("Encryption failed: %v", err)
+	}
+
+	encryptedData, err := io.ReadAll(encReader)
+	if err != nil {
+		t.Fatalf("Failed to read encrypted data: %v", err)
+	}
+
+	// Decrypt
+	decReader, err := encryptor.Decrypt(bytes.NewReader(encryptedData), key)
+	if err != nil {
+		t.Fatalf("Decryption failed: %v", err)
+	}
+
+	decryptedData, err := io.ReadAll(decReader)
+	if err != nil {
+		t.Fatalf("Failed to read decrypted data: %v", err)
+	}
+
+	// Verify
+	if !bytes.Equal(decryptedData, largeData) {
+		t.Error("Decrypted large data does not match original")
+	}
+}
diff --git a/internal/crypto/interface.go b/internal/crypto/interface.go
new file mode 100644
index 0000000..8c9633f
--- /dev/null
+++ b/internal/crypto/interface.go
@@ -0,0 +1,86 @@
+package crypto
+
+import (
+	"io"
+)
+
+// EncryptionAlgorithm represents the encryption algorithm used
+type EncryptionAlgorithm string
+
+const (
+	AlgorithmAES256GCM EncryptionAlgorithm = "aes-256-gcm"
+)
+
+// EncryptionConfig holds encryption configuration
+type EncryptionConfig struct {
+	// Enabled indicates whether encryption is enabled
+	Enabled bool
+
+	// KeyFile is the path to a file containing the encryption key
+	KeyFile string
+
+	// KeyEnvVar is the name of an environment variable containing the key
+	KeyEnvVar string
+
+	// Algorithm specifies the encryption algorithm to use
+	Algorithm EncryptionAlgorithm
+
+	// Key is the actual encryption key (derived from KeyFile or KeyEnvVar)
+	Key []byte
+}
+
+// Encryptor provides encryption and decryption capabilities
+type Encryptor interface {
+	// Encrypt encrypts data from reader and returns an encrypted reader
+	// The returned reader streams encrypted data without loading everything into memory
+	Encrypt(reader io.Reader, key []byte) (io.Reader, error)
+
+	// Decrypt decrypts data from reader and returns a decrypted reader
+	// The returned reader streams decrypted data without loading everything into memory
+	Decrypt(reader io.Reader, key []byte) (io.Reader, error)
+
+	// EncryptFile encrypts a file in-place or to a new file
+	EncryptFile(inputPath, outputPath string, key []byte) error
+
+	// DecryptFile decrypts a file in-place or to a new file
+	DecryptFile(inputPath, outputPath string, key []byte) error
+
+	// Algorithm returns the encryption algorithm used by this encryptor
+	Algorithm() EncryptionAlgorithm
+}
+
+// KeyDeriver derives encryption keys from passwords/passphrases
+type KeyDeriver interface {
+	// DeriveKey derives a key from a password using PBKDF2 or similar
+	DeriveKey(password []byte, salt []byte, keyLength int) ([]byte, error)
+
+	// GenerateSalt generates a random salt for key derivation
+	GenerateSalt() ([]byte, error)
+}
+
+// EncryptionMetadata contains metadata about encrypted backups
+type EncryptionMetadata struct {
+	// Algorithm used for encryption
+	Algorithm string `json:"algorithm"`
+
+	// KeyDerivation method used (e.g., "pbkdf2-sha256")
+	KeyDerivation string `json:"key_derivation,omitempty"`
+
+	// Salt used for key derivation (base64 encoded)
+	Salt string `json:"salt,omitempty"`
+
+	// Nonce/IV used for encryption (base64 encoded)
+	Nonce string `json:"nonce,omitempty"`
+
+	// Version of encryption format
+	Version int `json:"version"`
+}
+
+// DefaultConfig returns a default encryption configuration
+func DefaultConfig() *EncryptionConfig {
+	return &EncryptionConfig{
+		Enabled:   false,
+		Algorithm: AlgorithmAES256GCM,
+		KeyEnvVar: "DBBACKUP_ENCRYPTION_KEY",
+	}
+}