Unless you have Windows 7 Ultimate or Enterprise edition which comes with Biblocker there is no default operating system options to password protect data on external drive but there are tools available to protect your portable data on Flash drive or External Hard Drive.
Below are list of tools that you can use to password protect or encrypt data on external portable drives:
StorageCrypt – StorageCrypt allows you to encrypt and password protect removable drives, including USB drive, eSATA drive, firewire drive, flash cards, PCMCIA drive and more. It uses 128 bit AES encryption for maximum security. User password length up to 50 characters. Fully portable use, you may take it to anywhere on the fly without the software installed on each machine.
SafeHouse Explorert – SafeHouse Explorer makes your secret files invisible and hides them from snoopers, intruders and anyone else who doesn’t have your permission to view them.
SafeHouse Explorer uses passwords and maximum-strength 256-bit advanced encryption to completely hide and defend your sensitive files, including photos, videos, spreadsheets, databases and just about any other kind of file that you might have.
SafeHouse Explorer can protect files residing on any drive, including memory sticks, external USB drives, network servers, CD/DVDs and even iPods.