Photo Effects: Create A Photo Within A Photo

Step 1: Duplicate The Background Layer

With my original photo open inside Photoshop, I can see in my Layers palette that I currently have just one layer, the Background layer:

The first thing I need to do is duplicate the Background layer, so I'll use the quick keyboard shortcut, Ctrl+J (Win) / Command+J (Mac). I now have my copy of the Background layer showing in the Layers palette, which Photoshop automatically names "Layer 1":

To keep things easier to follow as we go along, and as a good habit to get into, I'm going to rename this layer to something more descriptive. Since "Layer 1" will eventually become the smaller, cropped version of the photo, I'm going to double-click on the name of the layer and change its name from "Layer 1" to "Smaller version":

Step 2: Create A New Layer Below The 'Smaller Version' Layer

The next thing we need to do is create a new layer below the "Smaller version" layer, so it ends up between the two layers we currently have. What most people would do here is click on the Background layer to select it and then create a new layer, since by default, Photoshop always creates your new layer directly above the layer currently selected in the Layers palette.

Here's a neat trick I prefer to use instead, and if you don't know about it, once you do know it, you'll use it a lot. Rather than creating a new layer above the currently selected layer, you can tell Photoshop to create it below the currently selected layer by holding down the Ctrl key (Win) / Command key (Mac) while you click the New Layer icon at the bottom of the Layers palette, as I'll do here:

And now, thanks to that little trick, Photoshop has created a new blank layer for me directly below the "Smaller version" layer:

Since I renamed the previous "Layer 1" to "Smaller version", Photoshop has gone and named this second new layer "Layer 1" in its place. I'm going to double-click the layer's name and rename it to "Clipping mask", since in a moment, we're going to be using this layer to "clip" the layer above it: