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Add the image you want to Georeference to your map project. Raster images - such as .jpg, .tiff, or .png files (all of these are image file types), are actually made up of multiple layers.  Click once on the name of the image file and then add it to your map project.  If you double click on the image file when using the Add Data feature in ArcMap, you will see something like this:

Raster Image Band Layers

The 3 bands represent layers that make up the image file. You can see the name of the file in the Look In: field at the top of the dialog box.

From this view, click on the Up One Level button
Up One Level Button
.you will see the file name of the image again. Simply highlight it by clicking on it once, and then click ADD to add the file to your Map Project.

  • Prepare all the spatial layers
    • Open all spatial layers you will use to georeference the image.
    • Zoom in to the approximate area that is covered by the image to which these layers will be added. This does not have to be exact as it is done just to provide you with an easier workspace.
    • Adjust the color and shape of any points so that they will be visible when displayed on the image.
    • Polygons will be easier to use if you make them "hollow" (hollow is a choice in the list of fill colors for symbols). Also choose a color and width for the line around the shape that can be seen against the image layer.
  • Prepare the Image Layer
    • Open the image layer.
    • Rescale the image to fit within the window; select from the Georeferencing tool bar:
          Georeferencing > Fit to Display

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