Normal Map Creation in Photoshop or Paint Shop Pro
Photoshop (built-in)
Newer versions of 
Adobe Photoshop (up to 22.4) includes Generate Normal Map feature. It is located in "Filters > 3D > Generate Normal Map...".
When clicking on it, a window will pop-up. Fiddle with the settings until you get something that you feel will be bumpy enough for your texture. The greater the range of colors, the greater the range of angles on the surface. A very flat surface will look that medium blue color all over.
In some cases, you may also need to invert height to make sure the normal mapping looks correct.
Once you are done, click OK.
Note:This feature has been removed in Photoshop 22.5 and later (since July 2024).NVIDIA Texture Tools
Note:As of Jasc Paint Shop Pro version 9, the NVIDIA normal map plugin no longer works. Use Photoshop, GIMP or VTFEdit instead.Alternatively, you can also create normal map on Adobe Photoshop or Paint Shop Pro, using NVIDIA's normal map tools, available here (requires Photoshop CC 14.0/2013 or newer). For previous version of NVIDIA normal map plugin (Photoshop 5 to CS6), click here.
Latest version
In Latest version of NVIDIA Texture Tools (requires Photoshop CC), the plugin works differently. Instead of going to Filter menu, you will have to save the image as .DDS file.
First, go to "Save As...", then save the file as "DDS - NVIDIA Texture Tools Exporter". After that, a NVIDIA texture tools exporter window will open.
- For Format: Select BC1 (also known as DXT1) or BC3 (a.k.a. DXT5)
Warning:BC3n Normals/DXT5n and other compression format are not supported, and VTFEdit & VTFEdit Reloaded might fail to import them.
- For Image Type: Normal Map (Tangent or Object Space)
After setting image format and image type, made some adjustments below.
Once you are done, click "OK". You can either drop the .DDS file directly to VTFEdit or convert .DDS file back to .TGA or .PNG and import them to VTFEdit this way.
Legacy version
To add normal map, open a copy of the texture and apply the Normal Map filter.
Fiddle with the settings until you get something that you feel will be bumpy enough for your texture. The greater the range of colors, the greater the range of angles on the surface. A very flat surface will look that medium blue color all over.
If you want to have more control over it, change the image to grayscale and fiddle with brightness and contrast to make certain details stand out before applying the filter. Be sure to change the texture back to RGB mode, or else the normal map tool will not work.
Do this step multiple times to get different details to stand out, and then put the images together in layers with the blend mode set to overlay.
Note that due to the way the normal map is generated, adjustments may be needed to the actual normal map image. For instance, the above normal map includes the grain of the wood. While this would be great for an old, rugged wood material, the image (apparently) being used looks more like it is a smooth, new wood floor. Since a the wood strips in a real wood floor would be glossed over, the in-game material wouldn't accurately represent the desired flooring because the grain would stand out too much.
For this particular texture and map, merely adjusting the main surface of each strip into a smooth, flat surface would solve this problem nicely. This could be done just by painting or blending the color 128,128,255 (#8080ff) into the "interior" of each wood strip. You may still wish to leave a few minor "defects" in the surface to provide visual interest. When finished, the normal map will show up in-game as a very clean and smooth wood floor, with obvious grooves between each piece that makes up the wood floor overall.