Many people are using RANDOM.ORG for this purpose. Since March 2007, there is the Third-Party Draw Service, which is especially intended for holding drawings and which will keep records of the outcome. The records serve as evidence that the drawing was conducted fairly, in case someone should question it later on. See the Guide to Random Drawings and section 5 of this FAQ for further details.
If you have no budget but a group of entrants who trust you, then you can use the Sequence Generator. In this case, RANDOM.ORG will not store a record of the result, so your entrants cannot verify the result. Let us assume you have sold or given out sequentially numbered lottery tickets, e.g., numbered 1-250 (if not, see the next question). Then do the following: