Tutorial: Make a 2-color stranded knitting pattern from a photo in Photoshop

This is a tutorial for how to make a knit chart for 2-stranded color knitting from any image using Photoshop. It was written for CS3 on a Mac, but hopefully will hold true for other versions and OS's. It will also work for cross-stitch and crochet patterns if you omit step 3 (crochet and cross stitch make square stitches unlike knit stitches that are wider than they are tall).

Some images definitely work better than others.  Play around to see what looks good to your eye. I suggest a photo where a single focal object is featured that contrasts strongly from its background. Start with something that looks good in black and white.

I make no promises that this is the best or easiest way to do this. Merely that this works. But hey, a tutorial that works is better than no tutorial at all, right? This tutorial assumes that you have some familiarity with Photoshop already, but please feel free to ask if you have any questions or something is unclear.

1) Find the image you want. Open it in Photoshop.
I'm going to show this with the example of Marilyn Monroe.

2) Resize the image 1.4 times the number of stitches you want for the final width.  (Say I want to have my pattern across 71 stitches. I would resize the image to 1.4*71=100 pixels). The more stitches across the better your resolution is so the more true your image looks. However, you do have to actually knit that many stitches, so don't go too crazy!
Resize by going to Image => Image size.
Make sure that the constrain proportions box is checked.
Enter your resize number in the pixel width box.

3) Now you want to change the height/width ratio. Remember that a knit stitch is wider than it is tall so we need to stretch the design vertically so that it looks right when knit. Usually 5 stitches wide is the length of 7 stitches tall so we need to alter the width/height by .71.
Go to Image=> Image Size.
Make sure the constrain proportions button is NOT clicked.
Under Document Size, put the units in percent.
Enter the width as 71.

4) Now we want to turn the image black and white to represent the two colors you will be knitting.
Go to Image => Adjustments => Threshold.
Here you can slide the threshold level around so that the design is represented most accurately (or stylistically) to your eye.
If there are different parts of your image that look better with different threshold levels, save both as different layers. Then you can erase the not-ideal part of the top layer to reveal the better exposure of the one below. Make sure you flatten your image afterward by going to Layer => Flatten Image.

Here are a couple of different thresholds:

I like the face in the left, but I wanted the detail from the top of the hair in the right, so I layered and erased away the hair.

5) Use the pencil tool to draw in single pixels in black or white to clean up the pattern or make any changes you still want. I often use this to wipe out any mess in the background.

On this image, I erased the line that connects her lips and lightened her removed some of the shadow from her neck and face. A few other picky fixes and we have:

6) Now, we want some gridlines. Go to Photoshop => Preferences => Guides, Grid, Slices & Count.
Under Grid, change the color to black and the Gridline to every 1 pixel.

Then go to View => Show => Grid.

7) To lighten the image so that you can see the gridlines, go to Image => Adjustments => Replace Color. Click on the image so that your selected color is black. Then slide the lightness bar to the right so that the black becomes gray.

8) I can't seem to find a way to get Photoshop to print the gridlines or add them to the actual image. So, here I take a screenshot (command-shift-3). Then, open the screenshot up in Photoshop and crop it around the pattern. Save it and you're done!!