DevTeam worked hard for the last several hours and released jailbreak tool for iOS 4.2.1. It is redsn0w 0.9.6 b4.
As usual we remind all ultrasn0w unlockers please stay away from this official firmware. Wait for the ability to create custom 4.2.1 IPSWs that don’t update your baseband!
New redsn0w 0.9.6 b4 uses limera1n exploit and will successfully jailbreak all devices. The only problem is that it is a tethered jailbreak, which means you will have to plug it to a computer and rerun redsn0w on every reboot. This so called tethered or semi-tethered jailbreak. This condition applies to iPhone 3GS (new bootrom), iPhone 4, iPad, iPod touch 2G (MC model), iPod touch 3G and iPod touch 4G. Hackers are working hard to create untethered jailbreak for these devices. To use future untethered jailbreak you need to save SHSH keys for iOS 4.1 using TinyUmbrella utility or directly in Cydia.
Old devices like iPhone 3GS (old bootrom), iPhone 3G and iPod touch 2G (non-MC model) can be jailbroken-untethered right now using this latest version of RedSn0w.