Most modern Android phones do not have data encryption built into the hardware, which means that you'll have to rely on third-party apps to secure your text messages, e-mail, and other critical communications.
Thankfully, you have plenty of options; one of the most promising is WhisperCore, a smartphone encryption app from Whisper Systems that can encrypt your phone’s entire hard drive and even create encrypted backups in case your phone falls into the wrong hands and you have to perform an emergency data wipe. The app is still in beta and works only with Nexus S and Nexus One phones, but hopefully the Whisper team is working hard to extend this awesome app to cover more hardware.
Alternatively, Android owners can selectively encrypt specific files and folders on their phones using apps like Droid Crypt ($2.89) or AnDisk Encryption ($3.99). Both of these apps allow users to encrypt images and documents stored on their smartphones using 128-bit AES encryption, which should buy you some time if someone manages to crack your password and start rooting through your phone.
Even better, a handful of Android apps currently in development (that is, they're in beta) can encrypt your outgoing phone calls and text messages in real time. Our favorite of these communication encryption apps include RedPhone and TextSecure, which are also from Whisper Systems. RedPhone will automatically encrypt your phone calls, making it more difficult for anyone to listen in, while TextSecure is a text messaging app that automatically encrypts all text conversations between you and other TextSecure users and stores all your text messages in an encrypted database.