Excerpted from “Adobe Acrobat 7 Tips and Tricks: The 150 Best”
The easiest way to protect your Adobe® PDF files is to give them a password. You can add password security to a document in source programs that use a PDFMaker, from programs such as Adobe Photoshop® CS or Adobe InDesign® CS, or set the options in Adobe Acrobat® Distiller. In Acrobat, you add the security through the Document Properties or Security Policies dialog. Add passwords if you intend to convert and email a document from your source program; if you plan to work with the document in Acrobat, or want to set specific encryption options, wait until the work is complete and then add passwords. Otherwise, each time you open the document you have to reenter your passwords.
The default setting is a high level of security compatible with Acrobat versions 5 and 6. When you open Distiller or a PDFMaker, you see the Compatibility level listed on the dialog below the Default Settings box (Figure 1). To change to a lower level of security to share documents with readers using older versions of Acrobat, or a higher level of security to use more features, you have to first modify the Compatibility level.

Figure 1: The Acrobat version displayed defines the available security characteristics.
In Distiller, choose Settings > Edit PDF Settings to open the Adobe PDF Settings dialog with the General tab displayed. Then, choose a version option from the Compatibility pull-down list (Figure 2).

Figure 2: Select an alternate Compatibility version from the pull-down list.
Click Save As and save the settings as a custom.joboptions file. In a program using a PDFMaker, choose Adobe PDF > Change Conversion Settings > Advanced Settings. The same dialog shown in Figure 2 opens, and you can select a compatibility level. The level you choose defines what options are available when you're setting passwords.
You can use two levels of passwords. The user level, or Document Open password, is a traditional type of password that requires the user to type the correct characters in order to open the file. The master-level password, or Permissions password, allows you to modify the document restrictions. You can use one or both of the password options in the same document.
In Distiller, choose Settings > Security; in a program using a PDF-Maker, choose Adobe PDF > Change Conversion Settings > Security. You see the encryption level at the top of the dialog (Figure 3). You can add one or two passwords:

Figure 3: Set Document Open, Permissions, or both levels of password in this dialog.
Click the “Require a password to open the document” check box to activate the field. Type in the password.
Click the “Use a password to restrict printing and editing of the document and its security settings” check box. Type in the password. Then specify the restrictions you want to add to the document.
When you add one or both passwords and click OK to close the Security dialog, you see a confirmation dialog; retype the password and click OK, and then click OK again to dismiss the encryption information dialog. When you set both passwords, you must confirm both in separate dialogs.
After you convert the document to a PDF, you must enter the password to open it in Acrobat (Figure 4). Type the password and click OK to open the document.

Figure 4: Type the password you saved in the Security dialog to open the document.
When the document opens, you see a security icon at the bottom left of the Document pane. Click the icon to open the Document Status dialog, which explains that the document has been encrypted and has attached security features (Figure 5). Click Close to dismiss the dialog.

Figure 5: Read about the document's security in the Document Status dialog.
You can change, add, and remove security in Acrobat as part of the security policy process.