It's not possible (at least not that I know) to specify Filevault's target dir. It will work by automatically working with your home folder by creating (if you are in Leopard or above) a Sparse Bundle (or a Sparse Disk Image if you are in Tiger). The reason for the change has to do with Time Machine (and to allow -to a certain extent- to backup a FileVaulted home).
However, you can pretty much "replicate" the functionality of FileVault for a specific folder(s) by using Disk Utility to create an encrypted sparsebundle image of the Folder in question. You'd have to mount this image every time you want to use it but the "effect" is similar.
You can create symbolic links to the files and add the image to the login items if you have an application that needs the data in its original location (which is pretty common). You will possibly have to add the image password to the "Keychain" for it to be automatically expanded.
It would be important to read about Time Machine's limitations too, since a FileVault home directory can only occur when you're logging in (or out). In order to make Time Machine to act as a regular, you need OS X Server edition as a target.
According to the wikipedia entry (which I should have quoted at the beginning since it has all this information, better written and more complete):
FileVault is limited to encrypting home directories only in versions of Mac OS X prior to 10.7, and only those directories in their entirety. FileVault can encrypt entire disks starting with Mac OS X version 10.7
(emphasis added by me)
It remains to be seen whether this is true or not, since we don't speculate about future versions, but keep that in mind.
As an alternative, there are "multiple" programs that will also help you keep a secure "vault" of things. I'm mentioning Exces because I got it from a Bundle a couple of years ago. I used it three times and it works; there might be free alternatives (as well as using the plain "Disk Utility").
Update: Added the link provided by Kyle, because it explains how to do it, but kept my answer because it's "longer" :)
The files on an encrypted disk image are encrypted.
As you can see currently you can have 128 bit AES and 256 bit AES. As is pointed out 256 bit will be slower but more secure, however both methods will leave your data encrypted, until it is decrypted.
The real issue is how strong the password for the encrypted volume is. If the password is not a random string of characters, but based on a dictionary word with substitutions of 1 for i etc, the files while encrypted might as well not be.
Ensure your password is based on a long sentence where you use all punctuation marks, include spaces, numbers and special characters.
Best Answer
OS X Mountain Lion (10.8) and OS X Lion (10.7)
Open
Disk Utility
.File
=>New
=>Disk Image from Folder
.Select the directory you want to encrypt (home directory).
Click
Image
.Set the
Image Format
to beRead/Write
and the encryption to128-bit AES
.Choose a password.
Accessing the Encrypted Folder & Contents
Remember password
.More Pertinent Information
You will want to store the encrypted disk image somewhere accessible enough, since you will be using a double-click to try to mount the folder image in Finder, and of course you will need the password to access the files.
With a readable and writable encrypted disk image, you can treat it as a normal folder and copy, delete, or move files from the image. Anything brought into the image while mounted will become encrypted automatically under the same protective layer with the same password. When you are finished working with the folder and want it password protected again, simply unmount the disk image. Regaining access again will require the password before it can be mounted and available.
3rd Party Apps/Snow Leopard Compatible
Knox- Create as many encrypted vaults as you want, each with separate passwords. Then schedule automatic backups. You can even reformat USB sticks and external drives as encrypted Knox vaults - moving files between Macs has never been so simple and secure.
Espionage-Unobtrusive and intuitive, Espionage is the most advanced encryption solution for Mac OS X, yet easiest to use. Espionage lets you encrypt individual folders and application data, and interact with them straight from the Finder.