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:
- Create your design and size it to 16px by 16px
- Using the ‘Save As” feature save the file as a bitmap with the .bmp file extension (favicon.bmp)
- Change the the file extension from .bmp to .ico
- Upload favicon.ico to your root directory
…and hey presto!