This tutorial is available as a PDF. Click here to view or download it
A few fellow forum members suggested I make a tutorial after giving shading tips on a different thread. No plug-ins needed. This will work on colored images as well to accent the highlights and shadows, but I tend to play with it the most on my sketches.
First, start with your base image.
Add a new layer for shadows and set the Blending Mode to Color Burn
Add another layer for highlights and set the Blending Mode to Color Dodge
Using a dark gray on the Dodge layer, color where you want highlights. The lighter the color, the brighter the highlight. If it looks too bright, try a darker color. Black will probably not show up at all. I like to lower the hardness of the brush to get a softer edge to help with blending later. If you want distinct highlights, you can try a harder brush.
Using a light gray on the Burn layer, color where you want shadows. The darker the color, the deeper the shadows.
Use Gaussian Blur to smooth out the shadows. Play with the slider to see what works best for your image.
Do the same to the highlights.
Using the eraser tool, clean up the edges of the highlights and shadows so they don't creep beyond the borders of your image.
If you find a section that needs a bit more adjustment, you can color where needed, use the selection tool to choose just that area, and then blur again to smooth it out.
Another option is to reduce the hardness of your brush and adjust the opacity to make it slightly transparent, if you want just a subtle change.
And then, you're done!
You can adjust the opacity of the Dodge and Burn layers if the highlights and shadows are too bright/dark.
This same technique on a colored photo (done quickly for this tutorial, not because my daughter needed any dramatization to her face):