DFS – SharePoint … Which if either or both provide the best structure?

I want to use the features of DFS to setup my department heads to manage their data and users rights. The problem is that with this method if a user has access to a file within a folder, they can see all of the files in that folder, even though the may not be able to access the files, we wish to make them invisable to those who don’t have access to them. In addtion we would like to use the SharePoint benifits of collaborating on documents and the fact that it will (Hopefully) get the users to stop e-mailing the document in house (creating numerous versions of the same file, each unique in it’s own way) and reduce the amount of waisted space and loss of information. The issue is can these two work together to produce the effect we want or is another solution better?