With the Sept. 2010 release of iTunes 10, Apple removed the ability to create custom ringtones from iTunes. This article applies only to versions earlier than 10. Ringtones may still be purchased via iOS apps at the App Store or made in audio editing programs.
There are two ways to discover what songs in your iTunes library are eligible to turned into ringtones: through the Purchased list and through your music library.
While only songs bought from the iTunes Store can be turned into ringtones, you may not always want to use your Purchased list. For instance, your Purchased list may be incomplete or may have been deleted. For this reason, and because I'm not aware of an automated way to discover and add purchased music back to that playlist, I strongly recommend using your iTunes library in whole as the starting point for ringtones.
In this case, you’d want to use your main iTunes music library by checking what songs can be made into ringtones by enabling the Ringtone column. Here’s how to find out which ones are eligible.