Step 12: With the marching ants showing around your image, click on “layer 1” in the layers palette, to make it active. With layer one active hit the “delete” key on the keyboard.
This has deleted most of the colour on “layer 1”, just leaving us with the thin black border line around the outer edge.
Go to Select>Deselect, or “Ctrl” and “D” on the keyboard, to deselect the selection.

Step13: Next we are going to duplicate “layer 1”. The quickest way to do this, is to click on “layer 1” to make it active, then click in the blue area and by holding down the left mouse button, drag the layer down and over the “create new layer” icon at the base of the layers palette. When you have the hand over the “create new layer” icon, let go of the mouse button and this will create a new copy of
“layer 1”, called “layer 1 copy”.

Step 14: Click on “layer 0” to make it active. Click in the blue area, and while holding down the mouse button, drag “layer 0” under “layer 1”. This changes the layer order. You should now see this.

Step 15: Click on “layer 1 copy” to select it. Go to Filter>Blur>Gaussian Blur. While adjusting the blur amount watch the outside of your image to get your desired blur effect. I used a value of 20. This gave me enough drop shadow without it bleeding into the white area around the image. Click OK to apply.

Step 15: Finally we need to flatten the image. Click on the small black arrow in the top right hand corner of the layers palette. In the flyout menu, click on, “Flatten Image”.

This is the final effect. (Click on image to see larger view)

This was a bit of a marathon, just to create a drop shadow border, but it has also helped us understand a little on how the layers palette works.