The best way to protect your sensitive data is to encrypt it, and we love free, open source TrueCrypt for that task. For the utmost in security, you can not only encrypt your files but hide them in a hidden volume within another encrypted volume.
This makes that hidden folder invisible to everyone who doesn't know it exists. The larger volume (whether you encrypt your whole drive or just a few folders) can act as a sort of decoy — useful if you're ever forced to decrypt your laptop or that password-protected container that's not hidden.
The video above from Tinkernut walks you through creating this secret encrypted drive within a drive using TrueCrypt.
Weekend Hacker: Make a Secret Encrypted Drive [Tinkernut]