This is a frequent request and one that is simple but not intuitive.

There are many plug-ins available for Photoshop to create Windows Icon files  but all you need do is follow these steps:

  1. Create your design and size it to 16px by 16px
  2. Using the ‘Save As” feature save the file as a bitmap with the .bmp file extension (favicon.bmp)
  3. Change the the file extension from .bmp to .ico
  4. Upload favicon.ico to your root directory

…and hey presto!