Unlike its predecessors, Lion is primarily a download-only version of Mac OS. You can purchase a preloaded flash drive from Apple, but it’s significantly more expensive than the standard download version. Here’s a way to make your own:
Step one is to get yourself a flash drive; it needs to be at least 5GB in size. Step two is to download the installer. If you’ve already downloaded and installed Lion, you’ll need to download it again from the App Store. If you haven’t downloaded it yet, go ahead and do that, but don’t let it install. Once it has downloaded, it will be called Install Mac OS X Lion.app and will be in your Applications folder.
Step three is to extract the useful part of that installer. What you want to do is right click (or control click) on that installer and choose Show Package Contents. Next, open the Contents folder and then Shared Support. In that folder is a disk image called InstallESD.dmg—copy that to your desktop. To copy instead of move this file, hold down the option key while dragging.
Step four is making the bootable drive. Open up Disk Utility (located in /Applications/Utilities) and drag that InstallESD.dmg into Disk Utility’s left sidebar. Now plug in your flash drive and make sure it’s formatted with GUID partition table with a Mac OS Extended (Journaled) format. Now click on the Restore tab and drag the InstallESD.dmg from the left-hand pane into where it says Source, then drag your flash drive from the left-hand pane into where it says Destination and click Restore. Your computer will take it from there. Once completed you’ll have a bootable installer for Lion.
Should you ever need to use this boot drive (generally when your hard drive has failed and the recovery partition is of no use), simply insert the drive, turn on your computer and select your USB key as the boot device.