Can I set up password protection for an external hard drive?
Password protecting a drive isn't really possible (or even useful) without also encrypting the contents of the drive. Honestly I'm not even certain that's something you can do since, what would the password be granting access to if the contents of the drive weren't encrypted?

So really the question you want to ask is: how do I encrypt an external hard drive?

With Lion you have FileVault to achieve this. FileVault makes it easy to encrypt your primary drive but you can also use it to encrypt the contents of remote storage. Just about any read/write storage media you attach via USB or FireWire can be FileVault'd and secured. The caveat? You can only use FileVault-protected drives on other Lion machines.

MacWorld has a short slide show that walks you through mounting and formatting the disk with an encrypted file system. To summarize the steps:


Mount the drive
Open Disk Utility
Select the drive and click on the Erase tab
For the format pick either Mac OS Extended (Journaled, Encrypted) or Mac OS Extended (Case-sensitive, Journaled, Encrypted) from the list of available options. In most cases you'll want the former.
Press Erase to start the format
You'll be asked to confirm your choice and enter a password for the volume
Once the formatting is complete you'll need to enter the password to be able to mount and view the contents of the drive


If you're not running Lion or you want something that's portable across multiple OSes you can look at TrueCrypt. It's free software for encrypting file systems, much like FileVault, but it's available for Windows, OS X (both Snow Leopard and Lion) and Linux so you can access the encrypted remote media from just about any machine.