First, I sketch in Photoshop CS5. This one is fairly clean but without much detail:
Next I choose/refine my lines and add details. I usually do this traditionally, with ink and paper, but I've been trying to make the move over to digital. You can still see the sketchiness in the under layers here:
Now it's time to pick my colors and block them in. I really enjoy doing this part in Photoshop because if I'm not sure about a color (which is often) I can easily play around with them until I'm satisfied:
Finally, I shade and add highlights. I think many pro artists who understand Photoshop better than I have ways of using its lighting tools to make this step easier, but I pick my shadow and highlight colors using the trial and error experience I've gained creating art with colored pencils:
There he is! Such a sweet little guy! He's got nothing but love...and spikey tentacles.