GIYF!
http://en.wikipedia.org/wiki/X.509
I haven't used these for a while, but IIRC, Outlook and OE have the ability to use these ready built-in. The recipient needs to have a key pair, and you use his public key to encrypt the email. He deciphers it (automatically, in Outlook) using his private key.
At the time I was playing with these, you could get these keys free from Thawte (since acquired by Verisign), amongst others. I've switched to the thunderbird/enigmail combination as I don't like MS's email products.
PGP/GPG is similar, and open-source, but you generally need an add-on to use it, which may deter some users.
Most of these certificate systems support a "web of trust" scheme, whereby users meet and vouch for each other and therefore you can be reasonably certain that an encrypted or signed message has genuinely come from who it says it has. This is probably not a great concern to you, as you already know who your correspondent will be.
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