Create a Dreamy Photo Effect with Photoshop Elements

Optional: If you'd like the edges to fade out into a different color other than white, just double click the left thumbnail on the "Color Fill 1" layer and choose another color. You can even move your cursor over your document and it will change to an eyedropper so you can click to pick a color from your image. I picked a color from the girl's pink shirt.

Save as a PSD if you want to keep your layers intact for further editing. As long as you keep your layers, you can still modify the edge color, and the clipping shape. you can even modify the dreamy effect, although you will need to paste a new merged copy above the shape and color fill layers if you do that.

For the final image, I added some text and paw prints using a custom brush. See my custom brush tutorial for creating the paw prints.