A Parallels virtual machine can be encrypted to make its files unreadable to anyone except those authorized to do so. Once this is done, the virtual machine cannot be started without providing the correct password specified earlier and its files cannot be read using standard Parallels or third party utilities.
An encryption module is provided by Parallels and is built into the Parallels Desktop. This module uses Advanced Encryption Standard (AES) with 256 bits key length, which is sufficiently strong and fast encryption algorithm.
If, however, you would like to use your own (or third-party) encryption module, the Parallels Virtualization SDK provides an API that allows to custom built an encryption plug-in and then use it instead of the built-in one.
Parallels Virtualization SDK Programmer’s Guide is available at parallels.com/products/desktop/support
NOTE: You are encrypting the virtual machine at your own risk.
NOTE: Parallels Support team is not responsible for any consequences caused by encryption and will not be able to help with decryption.