Published 15 Mar 2010. Updated 13 Mar 2012 for Blender 2.62.
Introduction
Been wondering how to do indirect lighting in Blender? Here’s how. (P.S. It’s easy.)

Step 1
Select the object you want to give off light. In Material->Shading, set Emit to 1.00. A higher Emit value = more light.

Step 2
Go to World and click the checkbox for Indirect Lighting. Set Factor to 1.00.Turn Factor down if you want less indirect light.

Step 3
Just underneath Indirect Lighting, there’s a Gather group. Click on the Approximate button. (Raytrace doesn’t work with indirect lighting.) Check Falloff and sets its Strength to 0.200 or so. The lower Strength is, the farther the indirect light will go.
The End.
Further Reading
- Intro to Indirect Lighting (Vimeo)
- Indirect Lighting in Blender 2.5 Alpha 2 (Vimeo)
- Using Indirect Lighting in Blender 2.5 (Cgtuts+)
- Indirect Lighting Blender 2.5 Alpha 1 (Vimeo)
- Indirect Lighting Setup (.blend)
- Sintel’s Cabin, featuring Indirect Lighting! (Durian)