• Update September 27th, 2009: This tutorial is now also available at the Gimptalk forum.

I found a tutorial for this effect on Sixrevisions for Photoshop. And because it was a beginners level tutorial -- it wouldn't be too hard to "port" it to Gimp.

So the credits go to the guy who wrote the tutorial on Sixrevisions.

Notes:

• I'm using the development version of Gimp (2.7) so some things can look a bit different.
• Select > Invert means that you have to go the the Select menu and click Invert.
• Original tutorial: How to Create Inset Typography in Photoshop

Step 1

Make a new image and draw a linear gradient (color codes: #016edf, #024f80).

(Click for larger version)

Step 2

Make a new text layer and put this in the center of the canvas. It's best to use a big or bold font.

Then make three new layers called: 'Text highlight', 'Text inner-shadow' and 'Text background'.

(Click for larger version)

Step 3

Now select the text layer and do Text to selection. Then select the Text background layer and fill the background with a gradient, a darker one than the background.

Don't delete/undo the selection. We need it for the next step. :)

(Click for larger version)

Step 4

Select Text highlight, make the selection one pixel smaller (with Select > Shrink) and invert the selection with Ctrl+i or Select > Invert. Now fill the Text highlight layer with a white color.

After you've done that you invert the selection again, make it one pixel bigger (with Select > Grow), invert the selection again and press delete or Edit > Clear.

You can clear the selection with Select > None or Ctrl+Shift+A.

You'll get something like you see in the following image. We don't use Select > Border, because it won't look that good.

(Click for larger version)

Step 5

Select the text layer again and do Text to selection. Now select the Text inner-shadow layer, make the selection two pixels smaller, invert it and fill it with a black color.

Now invert the selection again, make it 2 pixels bigger, invert it again and press delete or Edit > Clear. You should have a black border now that's behind the white border.

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Invert the selection again (yes... again...), open the Gaussian Blur dialog (Filters > Blur > Gaussian Blur) and apply the settings you see in the following image.

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You can clear the selection now.

Step 6

Select the Text highlight layer and apply Gaussian Blur on it with the blur radius set to one. Then move the layer below the Text background layer and move it one pixel the the right and one pixel to the bottom.

(Click for larger version)

Select the Text inner-shadow layer and move it one pixel the the right and one pixel to the bottom.

Now select the text layer again and do Text to selection, select the the Text inner-shadow layer again, invert the selection and press delete or Edit > Clear.

(Click for larger version)

Step 7

Now we have to fine-tune it to make it look good. You can copy some layer, adjust the opacity settings, add some highlights or patterns (hint: layer masks are useful for this).

(Click for larger version)

(Click for larger version)