The way to do it inside iTunes
Find the song that you want to make into a ringtone.
Listen to the song and find the part of it you want to use. The chorus may be a good place to start.
Write down the start and stop times of the clip.
Right-click the song and select "Get Info."
Click the "Options" tab.
Type in the start time of your ringtone in the text box next to "Start Time" in the minutes:seconds (i.e. 2:01) format.
Type in the end time of your ringtone in the text box next to "Stop Time." Make sure the ringtone is no more than 40 seconds long.
Right-click your song again and select "Convert Selection to AAC". Wait for iTunes to convert your song. It will create a duplicate version.
Right-click the ringtone and select "Delete".
Click on the "Keep Files" button.
Find the file. It's usually in your User folder under Music > iTunes > iTunes Music and under the band's name. It will have an extension of "m4a."
Replace the "m4a" extension of your ringtone with "m4r". You can either double-click slowly to re-name your file, or right-click and select "Get Info" on a Mac or "Rename" on a Windows PC.
Click "Use .m4r" or the PC equivalent when the system warns you that the change may affect the use of your file.
Double-click the ringtone file. ITunes will automatically add it to your ringtones folder in your iTunes Music Library.
Connect your iPhone and sync your ringtones.