This assumes that SquirrelMail is installed at /var/www/public/webmail.

The Nginx configuration:

location ~ /webmail/.*\.php {
    root /var/www/public;
    fastcgi_pass 127.0.0.1:1025;
    fastcgi_index index.php;
    fastcgi_param SCRIPT_FILENAME /var/www/public$fastcgi_script_name;
    fastcgi_param SCRIPT_NAME $fastcgi_script_name;
    fastcgi_param QUERY_STRING $query_string;
    fastcgi_param REQUEST_METHOD $request_method;
    fastcgi_param CONTENT_TYPE $content_type;
    fastcgi_param CONTENT_LENGTH $content_length;
    fastcgi_param REQUEST_URI $request_uri;
    fastcgi_param DOCUMENT_URI $document_uri;
    fastcgi_param DOCUMENT_ROOT /var/www/public/webmail;
    fastcgi_param SERVER_PROTOCOL $server_protocol;
    fastcgi_param REMOTE_ADDR $remote_addr;
    fastcgi_param REMOTE_PORT $remote_port;
    fastcgi_param SERVER_ADDR $server_addr;
    fastcgi_param SERVER_PORT $server_port;
    fastcgi_param SERVER_NAME $server_name;
    fastcgi_param REDIRECT_STATUS 200;
}

location ~ /webmail {
    index index.php;
    root /var/www/public;
}

Next, you must run a PHP FastCGI instance. For this purpose I'm using spawn-fcgi from the Lighttpd distribution:

/usr/local/bin/spawn-fcgi -a 127.0.0.1 -p 1025 -u sqmail -g sqmail -f /usr/lib/php4/bin/php-cgi