Step 12: Select The First Letter In The Layers Palette

Now that we have our word with each letter on its own separate layer, we can begin placing images inside the letters. We'll start with the first letter, which in my case is "S". Click on the letter's layer in the Layers palette to select it. You'll know it's selected because it will be highlighted in blue:

Step 13: Open The Image You Want To Place Inside The Letter

With the layer selected, open the image you want to place inside the first letter. If, when you open the image, it appears in one of Photoshop's full screen modes, press the letter F on your keyboard until the image appears in a document window. Here's the image I'll be using:

Step 14: Drag The Image Into The Main Document

With the image open in its own document window, simply click anywhere inside the image and drag it into the main document:

If we look in the Layers palette now, we can see that Photoshop has placed the image on its own layer directly above the first letter of the word:

And if we look in our main document, we can see the image blocking the first letter, as well as much of the background, from view:

Step 15: Create A Clipping Mask

To place the image directly inside the letter, or at least make it appear as if that's what we've done, we're going to use a clipping mask. The letter is going to become a mask for the image above it, which means that the only part of the image that will remain visible is the area directly over top of the letter. The rest of the image will be hidden, creating the illusion that the image is actually inside the letter!

To create the clipping mask, make sure that you have the image's layer ("Layer 1") selected in the Layers palette, then go up to the Layer menu at the top of the screen

You can also use the keyboard shortcut Alt+Ctrl+G (Win) / Option+Command+G (Mac). Either way "clips" the image to the shape of the letter. If we look again in the Layers palette, we can see that "Layer 1" now appears indented to the right with a small arrow pointing down at the Type layer below it, telling us that we've successfully created our clipping mask:

And if we look in our main document, we can see that sure enough, the image now appears as if it's inside the letter: