How to make virtual Encrypted disks?

True Crypt

Free open-source disk encryption software for Windows Vista/XP, Mac OS X, and Linux

Main Features:
Creates a virtual encrypted disk within a file and mounts it as a real disk.

Encrypts an entire partition or storage device such as USB flash drive or hard drive.

Encrypts a partition or drive where Windows is installed (pre-boot authentication).

Encryption is automatic, real-time (on-the-fly) and transparent.

Provides two levels of plausible deniability, in case an adversary forces you to reveal the password:

1) Hidden volume (steganography) and hidden operating system.

2) No TrueCrypt volume can be identified (volumes cannot be distinguished from random data).

Encryption algorithms: AES-256, Serpent, and Twofish. Mode of operation: XTS.
Further information regarding features of the software may be found in the documentation.

http://www.truecrypt.org/

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