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Compartmentalization is an unconscious psychological defense mechanism used to avoid cognitive dissonance, or the mental discomfort and anxiety caused by a person having conflicting values, cognitions, emotions, beliefs, etc. within themselves. Compartmentalization allows these conflicting ideas to co-exist by inhibiting direct or explicit acknowledgement and interaction between separate compartmentalized self states.

According to Glen O. Gabbard, often 'people with a borderline level of organization... have to compartmentalize people into "all good" and "all bad"', on the principle that 'compartmentalizing experiences... prevents conflict stemming from the incompatibility of the two polarized aspects of self or other'. Often, 'when the individual is confronted with the contradictions in behavior, thought, or affect, he/she regards the differences with bland denial or indifference'.

In matters concerning information security, whether public or private sector, compartmentalization is the limiting of access to information to persons or other entities who have a need to know it in order to perform certain tasks.

The concept originated in the handling of classified information in military and intelligence applications.

The basis for compartmentalization was the idea that, if fewer people know the details of a mission or task, the risk or likelihood that such information could be compromised or fall into the hands of the opposition is decreased. Hence, varying levels of clearance within organizations exist. Yet, even if someone has the highest clearance, certain "compartmentalized" information, identified by codewords referring to particular types of secret information, may still be restricted to certain operators, even with a lower overall security clearance. Information marked this way is said to be codeword–classified. One famous example of this was the Ultra secret, where documents were marked "Top Secret Ultra": "Top Secret" marked its security level, and the "Ultra" keyword further restricted its readership to only those cleared to read "Ultra" documents.

Compartmentalization is now also used in commercial security engineering as a technique to protect information such as medical records.