Set a pass code. It encrypts storage transparently after that. There are ways to force device security using lion server (or iCloud or active sync) too.
Unfortunately there are some flaws in the implementation, but it is at least easy.
Ah, I never thought it encrypted the drive because when I plug my iPhone into my computer it's still password protected but I can browse the photo's on my iPhone.
I couldn't see anything that looked like encryption in the Settings window.