I always have knitting with me for my commute. Some projects are better than others for commuting.
The first thing to consider is how long your commute is, and what your surroundings are like. Are you typically sitting still in one place/on one vehicle for a long time? Do you have to change bus/train/vehicle midway through the trip? How much elbow room do you typically have? Is the ride smooth? Do you have big bag(s) with you?
Me, I have about 20 minutes total on the streetcar (a.k.a. tram), with no changes. I usually get a seat the stop after I get on, which gives me a good 15 minutes for knitting.
First things first, I make sure that my commute project is small. Whether a sock or a lightweight scarf or a Lizard Ridge square or the sleeve of a sweater, I make sure that my knitting bag fits into my work bag. And I make sure that it's self-contained... I tend to work on things that don't require me to look at a pattern -- at all, or very often at least. In the case of socks and a lot of lace knitting, I will condense the key info on a small piece of cardboard that I safety pin to the knitting. Not only is it cumbersome to carry around a pattern, it's difficult to keep it handy for reference.
Here's my latest commute project: a black alpaca lace shawl. This is ideal commute knitting for several reasons: the laceweight yarn means that I've got tons of knitting in a very small ball of yarn. The fine gauge also means that progress is slow, so it will keep me going for several weeks' worth of commutes. And black lace requires more attention that my average project, so it keeps me very engaged and entertained. The pattern repeat is simple enough to memorize, but also to capture in two short lines in case I do need to refer to it. I've written it out on a piece of card, and safety-pinned it to the bag. I've also got spare stitch markers safety-pinned to the bag.
The safety pin is probably the most important portable knitting tool. I always have one or two with me. You can use them to attach your pattern notes to your work, as markers, and also for marking mistakes or rescuing dropped stitches that you need to deal with when you get home.
The bag itself is worth noting... it's a small nylon bag with a drawstring. It came with the headset for my office phone -- no idea why -- and it's ideal for carrying knitting. You need a bag that won't develop holes, and that has a closure. Knowknits also makes terrific portable knitting bags, but for throwing in my purse, I prefer this one. The Knowknits GoKnit Pouches have great little loops of nylon with snaps that allow you to attach your project to a bag strap or a belt loop -- but I find those and the closure toggles mean that they're a bit bulky for stuffing in my purse. They're great for when you have a larger bag, or when you're going to be knitting standing up, or walking around.
Similar rules apply for air travel knitting, with two major exceptions.
First, the equipment: Although the TSA has approved all knitting needles for air travel, I find that what is actually permitted on a flight is at the discretion of the security agents inspecting you and your baggage. The first rule is not to ask -- chances are, the security agent you speak to isn't a knitter, and therefore tends to think of needles as sharp and dangerous. I always take plastic, wood or bamboo needles for air travel and just send them through the x-ray machine. I've never been stopped or questioned about them. And as for commuting, I keep a minimal kit with me: the yarn, project, a condensed version of the pattern, a couple of safety pins, and if required, my plastic yarn needle. (It's a Susan Bates "Crystalite".)
And since I'm likely to be sitting for much longer periods of time, I tend to choose a more complex project for longer trips. After all, there will be little to distract me, and I'll be able to lay a pattern sheet out on my tray table or lap. Whether it's a travel project or not, I always photocopy my pattern instructions and carry them with me in a plastic sheet protector. I leave the book and magazine at home, protected from coffee spills. I can make notes and marks all over the photocopy of the pattern, and I only have to carry around the key pages. (Key caution: make sure you have all the instructions and pattern information with you... I ended up making a major mistake on my Pimlico because I was missing the photo.)
Of course, my favourite travel knitting tool is my Creative Zen digital music player... Just because I'm not reading a book doesn't mean I want to chit-chat....