C# – Set Directory Permissions for All Users in Windows 7

You also need to call SetAccessControl to apply the changes.

ds = di.GetAccessControl();
ds.AddAccessRule(fsar);
di.SetAccessControl(ds); // nothing happens until you do this

It seems that the examples on MSDN are sorely lacking in detail, as discussed here. I hacked the code from this article to get the following which behaves well:

static bool SetAcl()
{
    FileSystemRights Rights = (FileSystemRights)0;
    Rights = FileSystemRights.FullControl;

    // *** Add Access Rule to the actual directory itself
    FileSystemAccessRule AccessRule = new FileSystemAccessRule("Users", Rights,
                                InheritanceFlags.None,
                                PropagationFlags.NoPropagateInherit,
                                AccessControlType.Allow);

    DirectoryInfo Info = new DirectoryInfo(destinationDirectory);
    DirectorySecurity Security = Info.GetAccessControl(AccessControlSections.Access);

    bool Result = false;
    Security.ModifyAccessRule(AccessControlModification.Set, AccessRule, out Result);

    if (!Result)
        return false;

    // *** Always allow objects to inherit on a directory
    InheritanceFlags iFlags = InheritanceFlags.ObjectInherit;
    iFlags = InheritanceFlags.ContainerInherit | InheritanceFlags.ObjectInherit;

    // *** Add Access rule for the inheritance
    AccessRule = new FileSystemAccessRule("Users", Rights,
                                iFlags,
                                PropagationFlags.InheritOnly,
                                AccessControlType.Allow);
    Result = false;
    Security.ModifyAccessRule(AccessControlModification.Add, AccessRule, out Result);

    if (!Result)
        return false;

    Info.SetAccessControl(Security);

    return true;
}