I get this question a lot: how do I get an image or a picture to show up in just the shape of text or type? Well it's quite simple, actually. So, if you take a look at the Layers panel, I've got a Type layer here - you can turn that on and off - and I've got a Background Image layer. What I want to be able to do is only see this flower in the shapes of these letters and not see the rest of the flower image. So, I basically want to use that Type layer as a clipping mask, or as a mask for that particular image. Now the way you need to do this is convert this Background layer to a Normal layer, because we need to move this image above the Type layer to get this started.
So, to do it, let's just double-click on the word Background in the Layers panel to give it a different name. We can call it Photo, since we already have a layer called Daisy. Go ahead and click OK, and we're going to go ahead and move this Photo layer on top of the Daisy layer. And then to get this photo to only appear where the text is - there's two different ways to do it - you can go to the Layer menu and say Create Clipping Mask. There is the command right there, okay? We'll undo it, Command+Z, or if you hold down the Option Key or Alt Key on Windows and put your cursor between the two layers, you can Option+Click or Alt+Click on that line between the two layers to do the same thing.
So, now your image is only showing up where there type characters are, and it's been clipped by that layer. So, the Photo layer is indented to the right to show you that it's being clipped by the Daisy layer, and that Daisy layer gets underlined to show you the relationship between these two. They are still two individual layers though, so if I have the Photo layer selected and I get my Move tool by pressing V, I can freely move the image around inside the type, completely independent there. And if I select the Type layer I, of course, can reposition the Type layer independent of the photo.
To finish this off, let's go ahead and add a layer to the bottom of our layer stack. We'll click the New layer icon. We'll move that down below Daisy. Let's fill that with white by going to the Edit menu and choosing Fill, and we'll turn off Preserve Transparency and make sure our content say Use White. Go ahead and click OK. Great! Let's go back to our Type layer, selecting that, and let's give this a little bit of a drop shadow. We'll go to our Effects icon at the bottom of the Layers panel and choose Drop Shadow. And we can just click anywhere in the image outside the dialog box and just reposition that shadow where we want it directly, and we'll maybe change the size to make it a little bit softer and lower the Opacity to make it a little bit lighter. And there you have it, image inside of text.
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