According to an article on Wired, a model rocketry group from Portland State University is putting together a model rocket that is running on Linux.

The group is building a sophisticated rocket designed to climb to about 50,000 feet and to carry processors to control flight and send back collected data. The vehicle will have multiple CPUs, but it's main computer will be based on an AMD 586-based processor running Linux off of a 128MB CF storage card and with 802.11b for downlink.

The Portland State Aerospace Society's project page gives more details.