Start with the character's role in the story. Are you developing the main character, the love interest, the antagonist or the sidekick?
Decide on some basic information. Choose age, gender and some physical features. It may help to cut out interesting faces from newspapers or magazines and use them as starting points.
Name your character. Take your time because names say a lot about who your character is--ethnicity, nationality, age, economic status and religion are just some details that can be surmised from the character's name. You may want to start a file of interesting names you read about, hear on television or encounter in real life.
Give your character a life. He or she needs a birthplace and hometown; parents and siblings, an education, a job, some hobbies and friends. All these details say something about what kind of person your character is.
Give your character character. Start by asking what your character wants and what he or she is willing to do to get it. Lie? Kill? Sacrifice everything? Give up early on?
Get to know your character. With all the relevant details worked out, place your character in a variety of situations and "watch" what he or she does. For example, how does your character react when pulled over by a traffic cop? How does he or she get ready for a date? Does your character stop to pet the neighbor's dog or complain about the barking as he or she hurries past?
Give your character quirks and imperfections. No real person is perfect; if your characters are, your readers won't find them believable. Quirks in speech help the reader identify which character is speaking even if you don't add a dialogue tag.