Mountain Lion makes it really easy to encrypt external disks and flash drives directly from the Finder. Once a disk is encrypted, a password box displays whenever the disk in connected. In order to view or save data to the disk, you need to enter in the correct password. This feature is especially handy if you travel with your external drives.

To encrypt a disk, Ctrl-click or right-click the disk either on the Desktop or in the Sidebar of the finder and then choose “Encrypt [Disk Name]…” from the menu.

You will then be prompted to enter in a password, retype the password for verification and then type in a password hint. Then, click Encrypt Disk.

Note that if you are encrypting a large disk, it may take a good amount of time to complete the process.