Purchase blank sheet music paper from a local music store. You can also find staff paper online and print it free of charge (see Resources).
Indicate treble or bass clef at the beginning of your sheet, and include a time signature. The clef sign tells whether the chart is for an instrument in the treble clef (guitar, flute, violin) or the bass clef (bass guitar), or both (piano). The time signature tells how many beats of music are in a bar. For example, 4/4 is common time, meaning four beats of music per bar.
Use vertical bar lines to separate the bars of music. Write the lyrics to the song below the music staff, breaking them up as best you can to fit under the appropriate bar. Unless you can write very small and neat, consider writing the lyrics in a word-processing program to make them easier to read.
Write the chord changes to the song over the music staff in letter form. For instance, C for a C chord or Dm for a D minor chord. If you won't be writing a melody on the staff, write the chord names on the staff instead of above. You can also write chords above the staff with a guitar diagram that shows how to make the chord on guitar. This is often done in fake books specifically for guitar, but you may find it handy if you plan to have a guitarist playing along.
Write your melody line (usually the vocal line) on the musical staff in standard musical notation. If you include a melody line, keep it simple. A fake book should look as clean and sparse as possible. This makes it easy to open the book and see the chords and lyrics without a lot of other musical notation getting in the way.
Punch holes in your music lead sheets with a three-ring punch and store them in a three-ring binder for easy reference.