[root@fileserver ~]# cat /etc/redhat-release  
CentOS release 5 (Final)  

[root@fileserver ~]# rpm -qa |grep mysql  
libdbi-dbd-mysql-0.8.1a-1.2.2  
mysql-5.0.22-2.1  
mysql-bench-5.0.22-2.1  
mysql-devel-5.0.22-2.1  
mod_auth_mysql-3.0.0-3.1  
mysql-server-5.0.22-2.1  
mysql-connector-odbc-3.51.12-2.2  
php-mysql-5.1.6-5.el5  

[root@fileserver ~]# rpm -qa |grep vsftpd  
vsftpd-2.0.5-10.el5  
  
wget <http://rpm.pbone.net/index.php3/stat/26/dist/54/size/339076/name/pam_mysql-0.7-0.4.rc1.fc8.src.rpm>  
  
[root@fileserver ~]# rpmbuild --rebuild /tmp/pam_mysql-0.7-0.4.rc1.fc8.src.rpm  
Installing /tmp/pam_mysql-0.7-0.4.rc1.fc8.src.rpm
  
[root@fileserver ~]# rpm -ivh /usr/src/redhat/RPMS/i386/pam_mysql-0.7-0.4.rc1.i386.rpm  
Preparing...                ########################################### [100%]  
1:pam_mysql              ########################################### [100%]  

[root@fileserver ~]# mysql  
Welcome to the MySQL monitor.  Commands end with ; or g.  
Your MySQL connection id is 2 to server version: 5.0.22

Type ‘help;’ or ‘h’ for help. Type ‘c’ to clear the buffer.

mysql>  
mysql> grant all on *.* to root@localhost Identified by "password";  
mysql> create database userdb;  
Query OK, 1 row affected (0.02 sec)  
  
mysql> use userdb;  
Database changed  
mysql> CREATE TABLE users (username varchar (20) NOT NULL, password varchar(20) NOT NULL, PRIMARY KEY (username));  
Query OK, 0 rows affected (0.00 sec)  
  
mysql> INSERT INTO users (username, password) VALUES ('test3', ENCRYPT('test3'));

Now edit vsftpd.conf

[root@fileserver ~]# vi /etc/vsftpd/vsftpd.conf  
  
anonymous_enable=NO  
local_enable=YES  
write_enable=YES  
local_umask=022  
nopriv_user=vsftpd  
virtual_use_local_privs=YES  
guest_enable=YES  
user_sub_token=$USER  
local_root=/var/$USER  
chroot_local_user=YES  
hide_ids=YES  
guest_username=vsftpd  
listen=YES  
pam_service_name=vsftpd  
userlist_enable=YES

Now edit /etc/pam.d/vsftpd

auth required pam_mysql.so user=root passwd=password host=localhost db=userdb table=users
usercolumn=username passwdcolumn=password crypt=1
account required pam_mysql.so user=root passwd=password host=localhost db=userdb table=users
usercolumn=username passwdcolumn=password crypt=1

📝 Note:
0 = No encryption. Passwords in database in plaintext. NOT recommended!
1 = Use crypt
2 = Use MySQL PASSWORD() function

remove everything else from the file

[root@fileserver ~]# useradd --home /home/vsftpd -m --shell /bin/false vsftpd  
[root@fileserver ~]# /etc/init.d/vsftpd restart  
Shutting down vsftpd:                                      [FAILED]  
Starting vsftpd for vsftpd:                                [  OK  ]  
  
[root@fileserver ~]# mkdir /var/test3  
[root@fileserver ~]# chown vsftpd:vsftpd /var/test3/  
  
[root@fileserver ~]# ftp localhost  
Connected to fileserver.isb.ots.com.  
220 (vsFTPd 2.0.5)  
530 Please login with USER and PASS.  
530 Please login with USER and PASS.  
KERBEROS_V4 rejected as an authentication type  
Name (localhost:root): test3  
331 Please specify the password.  
Password:  
230 Login successful.  
Remote system type is UNIX.  
Using binary mode to transfer files.  
ftp>  
ftp>  
ftp> ls  
227 Entering Passive Mode (127,0,0,1,143,249)  
150 Here comes the directory listing.  
226 Directory send OK.  
ftp> 221 Goodbye.