First thing first, and that is before jailbreaking, make sure that you have updated your firmware to the latest version currently available, and that is iPhone OS 3.1.3. You can check the details over here. After doing that, proceed to the steps written below:

Here’s the step-by-step guide to Jailbreak your iPhone or iPod touch after you have upgraded your firmware to version 3.1.3:

1. Download redsn0w 0.9.4
2. Go to C:\Users\[your windows user name]\AppData\Roaming\Apple Computer\iTunes\iPod Software Updates and copy the iPhone OS 3.1.2 IPSW file (iPhone OS firmware) file to your desktop.
3. Run redsn0w 0.9.4 and click on browse. Select the iPhone OS 3.1.2 firmware you just copied to your desktop. 
4. After redns0w has validated the firmware, it will show some options such as Install Cydia, Verbose boot etc. Make sure to check Install Cydia and Already pwned.
5. Turn off your device and connect it to your PC. Hit next in redsn0w. It’ll start its work, would be showing you a progress bar.
6. Start your device in recovery mode [Press both the power and home button at the same time until the device starts and the help message on redsn0w disappears]. If you had shutdown your device as told in step 5, this process will be faster.
7. Click next again. Now you’ll have to hold the Power and while holding it, press the Home button but don’t release it. After few seconds, let go of the Power button but keep the Home button pressed until the firmware installation starts.

It will start some processing. Once its done, your device would be successfully Jailbroken!

Please note that this method does not Unlock your device.

If you faced any problems during the whole process, feel free to leave a comment below and I’d be glad to assist you with the jailbreaking process.

[via iThinkDiff]