How do I make a color background transparent?

A simple technique to use the original image background color/tone to drive the transparency. This works for any color background, providing there is some tonal contrast with the foreground.

1. If you have a solid foreground shape, apply the Threshold adjustment layer above the layer. If you have a complex shape like smoke or hair, use the Contrast and/or Hue & Saturation adjustment layers instead. Adjust the settings on the adjustment layers until it results in a background that is 100% black, while the foreground is 100% white. Any gray or colored areas (we are after the tonal info) will be semi transparent. Note - If you started with a lighter background, add an Invert adjustment layer first, as the area you want transparent needs to be black.

2. ctrl+a select all of the black and white result and ctrl+shift+c to copy merged all, then hide the adjustment layers.

3. Create a layer mask on your original layer and alt+click on the layer mask icon in your layers panel. This puts you in direct edit mode for that layer mask. Now ctrl+v paste the black and white version of the image in there. Click on the layer icon in the layers palette to escape the layer mask direct edit mode.

4. Smile, you just saved yourself a lot of tracing.