Developing the character should happen before they are put into text. The more you know about the character, the better you can describe their actions and reactions to the people around him or her. Go through the steps below the flesh out the when, where and why of your character. This doesn't have to go into your story; this is to help the writing be more realistic.
Personality Traits
Write out a list of descriptors that apply to your character. Is she spunky? Does he get frustrated easily? Is she tall, short, skinny or fat? Does she exercise, and if so, how, when and where?
Background
Write out the details of the character's background and use the background to explain the way the character is now.
Where did she come from?
Was it a happy home or a sad one? What made it that way?
How did her past affect the way she is now?
If he is spunky, is it because or in spite of the way he grew up?
Relationships
How does the character come across? Is she able to communicate well? Does he have a problem holding down a job, and why? Is she great with kids but horrible with adults?
Write out details of the character's interpersonal relationships, what happens when she meets new people, how she reacts to old friends, and how people end up seeing her.
Flaw
Is your character a perfect human being so far? If so you need to change that. Give your character a flaw, something that makes them an average human being that the reader can relate to.
Character Growth
It is a good idea to have your character grow throughout the story. Decide how she is going to grow, what will help the growth along, and where she'll end up eventually. It doesn't have to be good growth. Your perfect human being can crack down and be destroyed throughout the story as well. Just make sure something changes.
Affect the Story
Now its time to take all of these things and see how they affect your story! Put your character in the situation, look at her newly developed sense of being and see how she will react!