Though Layer Styles are definitely the way to go these days, you may occasionally run into a few cases where you need a little extra control that isn’t offered by Layer Styles. So if that’s the case, or if you use an older version of Photoshop, follow along.
To start off, you’ll need something to add a drop shadow to. This can be text, a logo, clipart… whatever. It will need to be on its own separate layer, whatever it is. Press D on your keyboard to reset your colors to their default values (we’re going to be using black).
If you’re putting your drop shadow on text, select the Type tool now and type your text. Make a new layer and in your Layers Palette, drag it underneath the layer that contains your text… you can name this layer Shadow. Hold down Command (PC: Control) on your keyboard and click on the text layer, and it should load a selection around it.
Now, go to Select » Feather and choose a number and press OK. The higher the number, the more “soft” and spread out your drop shadow will be. In the example, a setting of 5 was used. Make sure that the Shadow layer is selected and go to Edit » Fill » Foreground Color, to fill the feathered selection with black.
Now, depending on the direction your “light source” is coming from (top left, bottom right, etc) you need to move the Shadow layer several pixels up/down and several pixels right/left. In the example, I moved the shadow 5 down and 5 right. You can sometimes create the illusion that the object is high above the background by using much higher numbers… and note that the numbers do not have to be identical (e.g. could be 4 and 7, etc).
You’ve probably now noticed that the shadow looks a bit unrealistically dark. To fix this, adjust the opacity of the Shadow layer—in the example, the opacity has been brought down to about 60%.