Encapsulation and inheritance are key concepts in object-oriented programming. Encapsulation involves bundling together data and behaviors so they are inseparable, and information hiding separates internal implementation details from external access. There are three main ways to encapsulate data: using public, private, or protected access specifiers. Inheritance allows one class to acquire properties from another base class, enabling code reuse, extension of existing functionality, and modification through method overloading. Derived classes extend and specialize functionality of base classes.