Play the open G string twice, the G is the fourth string down. "Open" means you don't press on any frets. Pluck the string, either with a pick or with your fingers two times. Each note should be equal in length. These two notes make "Twin-kle."
Put your third finger on the third fret of the B string to make a D. The B string is one down from the G. Repeat the "Twin-kle" rhythm on this note.
Remove your third finger and play the open top E string twice. Note that "top E string" refers to pitch, not position. The top E string is at the bottom of the guitar, below the B. Repeat the "twinkle" pattern on this note to create the two syllables for "little."
Place your third finger back on the third fret of the B string. Play the note once, but let it ring for two beats. This completes the first line.
Put your first finger on the first fret of the B string to make a C. Play it twice, as you did for "Twinkle." This is the "How I" line.
Remove your finger and play the B string open, using the same rhythm. This is the "won-der" line. Put your second finger on the second fret of the G string to make an A. Play it twice to make "what you."
Play the open G and let it ring for two beats to make "are."
Make a D note by putting your third finger on the B string, third fret. Position your first finger on the first fret, ready for the next note when you've done D. Play the D twice.
Remove your third finger and play the B string twice again with your finger already on the first fret to create a C note.
Remove your first finger and play the B string open. Use the same rhythm as you did for "won-der" and "twin-knle," this time to make "world so." Put your second finger on the second fret of the G string to make A and let it ring. This is the "high" part. Repeat the "Up above the world so high" melody once more for the "like a diamond in the sky" line.