I will be using this picture for this tutorial:


Now, we will be making the blue background transparent. First we need to change its color depth. Go to image > decrease color depth > 256 colors


Now, select optimized octree in the first column and nearest color in the 2nd column


Now that you've decreased the color, go to image > palette > set palette transparency


Use your dropper tool to select the blue background color from your button. You should see the black color changing to blue after. Now you can press PROOF to see the transparency in effect.



Now save it as a .gif and you have your very own transparent image.