Asp.net-mvc – “401 Unauthorized” on a directory

There is no problem with your web.config. Your web site runs under a process. In iis you can define the identity of that process. The identity that your web site's application pool runs as (Network Services, Local System, etc.), should have permission to access and read web.config file.

Update:

This updated answer is same as above, but a little longer and simpler and improved.

First of all: you don't have to change anything in your config file. It's OK. The problem is with windows file permissions.

This problems occurs because your application can not access and read web.config file.

Make the file accessible to IIS_IUSRS group. Just right click web.config and click properties, under security tab, add IIS_IUSRS.

So what is this IIS_IUSRS thing?

Your web site is like an exe file. Just like any exe file, it should be started by a user and it runs according to permissions assigned to that user.

When your site is started in IIS, Application Pool of your web site is associated with a user (Network Services, Local System, Etc. ...) (and can be changed in IIS)

So when you say IIS_IUSRS, it means any user (Network Services, Local System, Etc. ...) that your site is running as.

And as @Seph mentioned in comment below: If your computer is on a domain, remember that IIS_IUSRS group is a local group. Also make sure that when you're trying to find this user check the location it should be set to local computer and not a corporate domain.

Solution:

IE is using Kerberos and not falling back on NTLM like Chrome and Firefox. You must force NTLM authentication in IIS7.5 by following these steps:

1. Select your site.
2. Double click authentication.
3. Select "Windows Authentication" (ensuring that it is enabled).
4. Click "Providers..." in the right hand column.
5. Select NTLM and click "Move Up".

Link: windows authentication not working in ie7