How to Pixelate Images for Crafting Projects

I've gotten several questions about how to turn an image in a pixelated grid that you can use for perler beads, cross stitching, or crocheting. With his perler bead projects, K usually starts with actual game sprites that are already pixelated. However, you can do the same thing in PhotoShop with any image:

1. Switch the image from RGB to Indexed Color. In the options, you can choose to create a custom palette with x number of colors. This will let you take even a photographic image down to a set number of colors. (see this link for screenshots)
2. Reduce the image in size until it matches the pixel height/width you want.

If you want the black grid, you can either turn that on in Photoshop, or do what K did: save out the image, open it in Microsoft Paint (with Windows 7 or Vista), zoom in a bit until the grid shows, then do a screen capture (PrtScn button on the top of keyboard). Then create a new image in Photoshop and paste the capture into it with Ctrl+P. Presto!