myJanee.com --> Photoshop Resources --> Janee's Tutorials -> Bursting through Paper

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A 'knockout effect' lets you punch text and shapes into a layer of color so that you can see the background through the holes. Here's how to do. To create this effect: Choose a layer in the Layers palette. (On this screenshot - 'Shape 1') In the Effects palette, double-click the 'Knockout' thumbnail. If you want to punch through the Background (to transparency), convert it to regular layer (Layer New Layer from Background) or simply hide it (screenshot).