Part 1: Creating a Stencil Design Using Photoshop CS4

In this tutorial, i will be taking you through a detailed yet simple guide on how you can turn a simple jpeg image into a printable stencil using Photoshop and Illustrator that can be used to screen print your very own t-shirts. 
For this first part of a two part tutorial, I will be showing you how you can create the stencil design in Photoshop and in Part 2 of my tutorial, i will show you how to convert it to a vector image in Illustrator CS4 for a smoother more cleaner looking image that's also scalable.

For this tutorial i will be using an image I downloaded off Google's Image Search of two beautiful women in beach wear because i wanted the final product to be printed on a ladies garment,preferably t-shirts, using this stencil we are creating.
Feel free to use my image as this will make it easier for you to follow along.
To begin, open up any image in Photoshop and duplicate it twice either by using the keyboard shortcut (Ctrl + J),dragging the image over to the folded page icon next to the trash can on the bottom of the layers pallete or by simply right clicking the active layer and selecting "Duplicate Layer". Now you should have three layers; background and two copies of your original image. Go ahead and name each layer according to your preference. 

Turn off the visibility of the first two layers,that is,background and the first copy after it by clicking on the eye icon next to each layer. With the top most layer (copy two) selected, head on up to Image on the menu bar, select Adjustments > Threshold.
The idea here is to set the value of the Threshold Level low so we can just have a slight or basic outline of the image. For this image i will be using a Threshold value of 125. Don't forget to check the preview box so that you can see how much of the effect you are applying.
Click OK.

Next go to Select > Color Range.
Once the dialogue box appears just click the white areas of the image to select it and then click OK. What you should now see are lines of marching ants around the black parts of the image indicating the white areas you just selected.
Go ahead and hit Backspace or the Delete key to clear the white areas and what remains is the black areas of the image.
Press "Ctrl+D" to deselect everything.
Now just repeat the previous instructions for the first copy.
Remember: Turn of the visibility of the top most layer, turn on the visibility of copy one and select the copy one layer.
For copy one, i used a higher threshold value to really highlight the key features of the two women and for that i used a value of 155.

When you've completed copy one, double click the copy one layer to open up the layer styles dialogue box. Here we are going to change the color overlay to a light grey color to give it a good contrast against the black of copy two.
So, select Color Overlay and and click the color box to change the color.
I'm using #bebebe.

Now create a new layer above the background layer and fill it with white. To do so, select the background layer and click the folded page icon at the bottom of the layers pallete and use the keyboard shortcut "Alt+Backspace" to fill the layer with white.
Note: Reset your foreground and background colors by using keyboard shortcut "D". Press "X" to change the foreground color to white.
Turn off visibility of the background layer and turn on visibility of copy one and copy two.
The result should be a two tone (color) image (black on top and grey underneath).
In part two of my next tutorial, i will be showing you how to convert the image into a vector image using Illustrator.