These are the available Unicode Fonts.
Also check  for latest fonts.
AnjaliOldLipi font displays both Unicode 5.0 and 5.1 "Chillus" (consonants without vowel sounds). However, rest of them deals with Chillus written as in Unicode 5.0 only.
To setup the fonts just copy it to ~/.fonts directory or open nautilus file manager and go to location (press CTRL+L and type location) fonts:/// and drag-n-drop font files to this location. If you want it to be available to all users copy it to /usr/share/fonts. You can check whether the fonts are installed correctly by running the command fc-list (eg. fc-list |grep Rachana ). Restart the running applications so that the new fonts are available to them. All aplications which depend on font config will be able to use the newly installed fonts.
KDE and GNOME renders Malayalam perfectly. However you may need the latest Pango(version 1.22) to render Malaylam perfectly in GNOME. You can use either KDE tools or GNOME tools to read and write Malayalam. Pango-1.22 is included in Fedora 10 and Ubuntu-8.10. The latest release of OpenOffice.org(3.0) and libicu(4.0) renders Malayalam perfectly and there is no need to install any patches.
Inscript keyboard layout
Even though it might look a bit difficult to start it is the fastest input method. You can select malayalam keyboard layout from "keyboard" menu in GNOME Preferences section (in my Debain GNU/Linux etch it is Panel->Desktop->Preferences->Keyboard) or (...fill in for KDE here ...) in KDE
Inscript [Malayam Keyboard layout (I would suggest you take a printout of this picture, you won't need it for more than two days maximum though :) )
Lalitha phonetic keyboard layout
For more details see this page.
Phoentic Input Method- സ്വനലേഖ
This input methods provides an easiest method to type Malayalam in Manglish. It comes with flexible keymapiings and typing suggestion features.
Visit സ്വനലേഖ for more details.
You can type in manglish as you do in varamozhi. Please follow these steps: 1. Install SCIM 1.2.2 or later.
* for .deb files see here * for other SCIM downloads see here * install libscim, scm-gtk-module and scim-devel packages.
2. Install KMFL (keyman runtime) version 0.8 or later.
* binaries are available as RPMs and DEBs in KMFL download page * install kmflcomp, libkmfl, libkmflcomp, libkmfl-dev and scim-kmfl-imengine.
3. Download Keymap (tar.gz file)from here and extract it. Copy *.kmn to ~/.scim/kmfl & mozhi.bmp to ~/.scim/kmfl/icons (create these directories if it does not exist)
4. Restart SCIM (best option would be restarting X by pressing CTRL + ALT + BACKSPACE)
5. Use CTRL + SPACE to active SCIM, select Mozhi Keymap from other keyboards section.
See help page of Malayalam Wikipedia for help in setting up malayalam environment for Windows.