Protecting controller actions from CSRF attacks by ensuring that all forms are coming from the current web application, not a forged link from another site, is done by embedding a token based on the session (which an attacker wouldn't know) in all forms and Ajax requests generated by Rails and then verifying the authenticity of that token in the controller. Only HTML/JavaScript requests are checked, so this will not protect your XML API (presumably you'll have a different authentication scheme there anyway). Also, GET requests are not protected as these should be indempotent anyway.

This is turned on with the protect_from_forgery method, which will check the token and raise an ActionController::InvalidAuthenticityToken if it doesn't match what was expected. You can customize the error message in production by editing public/422.html. A call to this method in ApplicationController is generated by default in post-Rails 2.0 applications.

The token parameter is named authenticity_token by default. If you are generating an HTML form manually (without the use of Rails' form_for, form_tag or other helpers), you have to include a hidden field named like that and set its value to what is returned by form_authenticity_token. Same applies to manually constructed Ajax requests. To make the token available through a global variable to scripts on a certain page, you could add something like this to a view: 

  <%= javascript_tag "window._token = '#{form_authenticity_token}'" %>

Request forgery protection is disabled by default in test environment. If you are upgrading from Rails 1.x, add this to config/environments/test.rb: 

  # Disable request forgery protection in test environment
  config.action_controller.allow_forgery_protection = false

Learn more about CSRF (Cross-Site Request Forgery) attacks

Here are some resources:

Keep in mind, this is NOT a silver-bullet, plug ‘n' play, warm security blanket for your rails application. There are a few guidelines you should follow:

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February 18, 2009
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Turn off for individual controllers/actions

To disable protection for all actions in your controller use skip_before_filter:

skip_before_filter :verify_authenticity_token

You can also pass :only and :except to disable protection for specific actions, e.g:

skip_before_filter :verify_authenticity_token, :only => :index