The iPhone dev team has already released RedSn0w 0.9.6b4, based on Geohot’s Limera1n bootrom exploit, which brings first proper jailbreak, with working Cydia for all iOS 4.2.1 devices.
A major negative about going for Redsn0w 0.9.6b4 is that it is tethered jailbreak which means you will need to rejailbreak it everytime the device is rebooted (just like Blackra1n). The tethered jailbreak condition in Redsn0w 0.9.6b4 however only applies to the new devices like: iPhone 3GS (new bootrom), iPhone 4, iPad, iPod touch 2G (MC Model), iPod touch 3G and the iPod touch 4G. 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.
In case you prefer untethered jailbreak, wait for an updated version of JailbreakMe. Also, if you rely on the ultrasn0w unlock, this jailbreak is not for you and hence you need to wait for now.
How to Jailbreak iOS 4.2.1 using Redsn0w 0.9.6b4
Step 1: Download iOS 4.2.1 for your version of iOS device.
Step 2: Update/Restore to iOS 4.2.1 firmware using the IPSW file you just downloaded via iTunes 10.1.
Step 3: Download Redsn0w 0.9.6b4 for Windows / Mac
Step 4: Start Redsn0w 0.9.6b4 and point it to iOS 4.2.1 firmware to proceed with the jailbreak.
Step 5: Now select “Install Cydia” and click “Next”.
Step 6: Turn off your device and connect your device to the computer. Now click “Next”. You will now need to put the device in DFU mode. Hold “Power” button for 3 seconds, without releasing power button, hold the “Home” button for 10 seconds and release power button but keep holding Home button for another 30 seconds.
Step 7: Wait for Redsn0w to do the rest for you. Once done, your iPhone or iPod touch will restart automatically and you will find it jailbroken on the latest iOS 4.2.1 firmware.
For iPhone 4, 3GS (New Bootrom), iPod touch 4G / 3G / 2G, iPad ONLY:
Step 8: Now from here onwards, whenever you want to do anything related to jailbreak like SSHing into your device, or running Cydia, you must first run your device in the so called “jailbroken state” on every reboot by using “Just boot tethered right now” option in Redsn0w.