MAC OSX: How to unzip password protected .zip file

Open the Archive Utility (/System/Library/CoreServices/Archive Utility), open its preferences (in the Archive Utility > Preferences menu), and uncheck the "Keep expanding if possible" option.

p.s. If you want to get at these prefs easily (e.g. if you want to be able to switch this setting on & off at whim), you can install the Archive Utility prefs into System Preferences by opening the Archive Utility package (right-click or control-click on the application, and select Show Package Contents), then navigate to Contents/Resources, and double-click Archives.prefPane to install it.

I believe this program will solve your issue:

BetterZip 1.7.3

BetterZip can open, extract, and create password protected zip files that are compatible with PKZip2 or WinZip's AES256 encryption. Whenever BetterZip needs a password for an operation a panel will drop down and ask for the password. BetterZip can split archives into multiple volumes. Add files and folders to existing archives, update or rename files already in the archive, move files around within the archive, and delete files and folders from an archive. Create new folders inside the archive. Easily search for files and folders by name inside the archive.

Although apparently it costs $20, i was able to download it. Was not installed though, so it may require registration after a certain period.

I recommend you try the TrueCrypt answer also.

I also came across this Tutorial that does not appear to require any third party software.

All you have to do is open your Terminal and cd to the correct directory, then enter

$ zip -e myzipfile.zip file1.txt file2.txt 

However, to open a passworded zip file on Mac you require third party software. I found this tutorial that used Zipeg to open the passworded zip.

I did have a friend try it though, and he used

$ unzip myzip.zip 

And was prompted for the password.

The tutorial had mixed comments on it, so your version of OS X may vary on the results.