Creating Alpha Textures Using Photoshop

Create a texture with Alpha channel in Photoshop and save as a TGA file to upload into Second Life.

Open your JPG or other file.
Open your file and look at Channels.

and open the channels panel.

Use Magic Wand or Select by Color to select the portion to be transparent.
Magic Wand

Select Background

Inverse the selection to copy the foreground image.

Create a new channel – the Alpha channel.

Take the Defaults.

The Channels Panel
Alpha Channel

Copy the Image from the RGB to the Alpha Channel.
Alpha Channel

Use Levels to adjust the Brightness of the Alpha channel.

Brighter Still

Back to RGB with Alpha display

Save the TGA file with Alpha
Save the TGA file

Alpha Options.
Alpha Options

Import the file into Second Life
Import TGA into SL

Imported file with hatched pattern for the transparent portions.
Imported TGA