How do I restrict user's to their home dir in the telnet/shell?

Problem:

Is it possible to restrict users to their home directory in telnet and/or ssh ?

Solution:

For V-hosters, most of your concern lies in the simple feat of keeping customers from poking around your system, and other user's home dirs--without limiting their ability to execute binaries in their normal system path.

Solution:
The "easy fix" for this is to use "restricted bash" (aka rbash or bash2) to stop their ability of "cd'ing" and limit their ability to do anything outside of their home directory. rbash is not the most secure way to do it, but will usually stop 80%-90% of the poking around that most users might like to normally do. Below is how you would accomplish this:

For restricting your shell user's directory access to /home/username (while allowing executing from the system path) you (the admin) can use bash2 or "rbash" instead of just bash. When a user uses bash2 via the sym-link "rbash", bash2 will note this and run in "restricted mode". Basically, it simply does not allow them to invoke anything above their own home directory from the command line... but all other spawned apps have normal system access. Type "info bash2" for more info on the restrictions. bash2 comes standard in our RedHat 6.2 and higher systems.

To set up your system to use it... just do this:

            # ls -la /bin/*bash*

                                                            

            # ln -s bash2 rbash