What are you trying to protect via encryption?
We need to develop a plugin that encrypts all data, due to sensitivity of the information.
Fair enough, data privacy is important.
My question is if WordPress core will allow all data to be encrypted, including upload of files?
Not really. WordPress core doesn’t directly support encryption exactly though an add-on could and PHP does support hashing and other things needed for that. There’s not any PHP based system that can handle that directly.
Note that obfuscating PHP isn’t encryption and is more of an annoyance to casual code viewers.
*Drinks coffee*
You have to think in terms of access and control. Encryption typically needs a private and public key. The public part is trivial (it’s public after all) but you need to limit and explicitly control access to the private encryption keys and their pass phrases. If you store the pass phrase in a plain text file but don’t take care to restrict that… that’s a disaster waiting to happen.
So… back to my original question. What are you trying to protect and how? Encrypt data for storage where? In the DB or on a file system?