A data security system, and method of operation thereof, is provided that includes: an electronic authentication subsystem for verifying a user identification against an authentication key and for employing the authentication key for retrieving an encryption key, the authentication key only accessible from inside the electronic authentication subsystem, and the user identification supplied from outside the data security system to a receiver within the electronic authentication subsystem; and a storage subsystem employing the encryption key for allowing unencrypted communication through the storage subsystem between a host computer system and a storage media.