Keith Winston of Linux.com provides a tutorial on filtering web content using open source tools like squid and squidGuard.

Content filtering for the Web can be a messy proposition. A business may need to block only the most objectionable Web sites, while schools may be required by law to follow a more thorough process. Whatever your needs, you can build a solution with only open source pieces: squid, squidGuard, and blacklists.

We use this in the University of the Philippines - to make sure that users comply with the university's acceptable use policy.