Of course you can.  Scalability is mostly a product of good planning, good seperation of components and good coding/selection of algorithms.  

The current in vogue method for scaling with ruby on rails is to use <a href="http://mongrel.rubyforge.org/">Mongrel</a> (ruby based web server) as your application server on the backend.  You can setup multiple servers running Mongrel to help you scale when you need to.  You then setup your front-end web server (Apache, LightHTTPD, whatever) to proxy requests to Mongrel and you can then setup various load balancing algorithms to distribute the load.  You can scale out the front-end web server instances as well by putting a hardware or linux based web load balancer in front of them.

Finally, if you develop a serious database backed web application you will likely find that one of the main bottlenecks is the database not the application code.  To alleviate this consider caching solutions like <a href="http://www.danga.com/memcached">memcached</a> which has good support built into ruby and rails.