You can use the method in this article to move your iTunes Music folder to an external drive:
http://support.apple.com/kb/HT1364?viewlocale=en_US
This way your library databases stay on the internal drive.
Or you can move every thing to an external drive.
First make sure all your music is in the iTunes Music folder. If it is not you need to consolidate. This is best done before the move, but you can do it immediately after as well.
Once your music is together, with iTunes closed, COPY the iTunes folder from My Music (or Music for Vista)to a location on the external drive.
Now hold down the shift key and start iTunes. Keep the shift key down until you are prompted to choose a library. Navigate to the iTunes folder on the external drive and choose iTunes Library.itl.
You only have to do this once, unless you start iTunes without the drive plugged in. Then you will have to repeat the process once the drive is plugged in.
Not I said copy your iTunes folder - the original iTunes folder is left undisturbed on the internal drive. Don't think of deleting it until you are certain everything works OK on the external drive.