How to password protect an external hard drive

I just bought an external HD to use with Time Machine and for some extra space, but I would really like to password protect it. Since it has all my files on it, it is just as important as password protecting my computer. I'm thinking I probably have to use Disk Utilities, but I'm not quite sure how to do it.
Please be as detailed as possible, because I don't delve into Utilities very often.
Thanks
P.S. My HD is a Toshiba Portable Hard Drive, if it makes any difference. It advertises on the back that it can be password protected, but I have been unable of finding any way to do so.

Hello FidgetingFinhc,
The best protection for your data is to maintain the data as a encrypted disk image. Creating a "sparse image" will require a password to open:
I would follow the instructions provided by the Apple Support document below on how to make this happen.
http://support.apple.com/kb/HT1578
Hope this helps.
B-rock

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