On September 23, 2011, Gavin Andresen released the Bitcoin 0.4.0 update.
With Bitcoin version 0.4.0, you could now protect your wallet with a passphrase for the very first time, adding a major security layer. This update also included bug fixes and a switch to a newer database version, making it incompatible with older clients.
See archived announcement and detailed explanation of how passphrases work below.