I would second the recommendation for TruCrypt. It is free, runs on PC, Mac, Linux and you can either encrypt the whole drive or just encrypt a file that will serve as a virtual drive when mounted in TruCrypt. It uses industry standard AES encryption.
Personally, I have a 4GB thumbdrive that I keep with me. I have a 3GB TruCrypt personal drive on there and leave 1GB as unencrypted. This allows me to "SneakerNet" files to others when needed on the unencrypted space and still keep my personal files under encryption.