Displacement Mapping with Blender By Anthony C. D'Agostino

The Material & Texture Settings

Press F5 and add a new material, then press F6 and add a new texture. Click on the 'Image' button and load the grayscale image that will be used as a displacement map.  We usually don't want this image showing up in the color channel, so go to the 'Material' buttons again and make sure that the 'Col' button is not pressed in.  In editmode and with all vertices selected, press F9 and click on the 'Noise' button.

Technical Note: Each click moves the vertices (that correspond to a white pixel) exactly 0.05 "Blender units" in the direction of the positive z-axis.  You may need to click on the 'Noise' button several times to get more "height."