Lion - Full Disk Encryption
Previous versions of OS X encrypted just the Home folder. OS X.7 encrypts the entire system with XTS-AES 128Bit Disk Encryption so it can't be read unless a login password is entered.
Directions:
Step 1 - Go to Apple Menu and open System Preferences.
Step 2 - Click on the Security & Privacy icon.
Step 3 - Click on the FileVault tab.
Step 4 - Click on the Turn On FileVault...
Step 5 - Have users log in to their accounts through this pane. If not, they cannot access their data without someone logging in first.
Step 6 - Once all users have entered their passwords, click on Continue.
Step 7 - You will be given a code. Write it down somewhere safe! ITCS cannot recover this code for you.
Step 8 - Choose how you want your recovery key stored. Its recommended that you keep it as fees might be applied if its stored with Apple. Click on Continue.
Step 9 - Restart your machine.
Step 10 - You can check on the progress of the encryption after you log back in. Go to System Preferences > Security & Privacy > FileVault.
There is more detailed information at Apple: http://support.apple.com/kb/HT4790
