Place a PSD File into Illustrator

Use the File>Place command to add a Photoshop document into an existing Illustrator document. In the Place dialog, you can choose to link the file or embed the image. To link the file, just choose the document you want to place and click on the Link checkbox at the bottom left of the dialog before you click the Place button. There actually isn't an option called "Embed," just don't select the Link checkbox in the Place dialog. A linked graphic is easier to edit in Photoshop, while an embedded PSD file makes your image more compatible with other applications. To check if a file is linked or embedded, open the Links palette under the Window menu. An embedded graphic will have a small icon (aka: the Embedded Artwork icon) to the right of the image's name in the Links palette, while linked graphics do not have that icon. Want an even easier way? You can also click on the placed graphic with the Selection tool (V): A linked object has an X through it, while an embedded object does not.