How to do Istikhara (Prayer for Guidance)

Istikharah is a du'a made in conjunction with non-obligatory prayer; it is a voluntary prayer that Prophet Muhammad peace and blessings be upon him recommended to anybody wanting to do something but feeling hesitant about doing it. It is seeking guidance in order to make the right decision. It is reported that Prophet would teach his companions to make Istikharah just as he would teach them verses from the Quran. One should pray two units of non-obligatory (voluntary) prayer and then say the du'a of Istikharah.
Du'a of Istikharah:
اللَّهُمَّ إِنِّي أَسْتَخِيرُكَ بِعِلْمِكَ وَأَسْتَقْدِرُكَ بِقُدْرَتِكَ وَأَسْأَلُكَ مِنْ فَضْلِكَ الْعَظِيمِ فَإِنَّكَ تَقْدِرُ وَلَا أَقْدِرُ وَتَعْلَمُ وَلَا أَعْلَمُ وَأَنْتَ عَلَّامُ الْغُيُوبِ اللَّهُمَّ إِنْ كُنْتَ تَعْلَمُ أَنَّ هَذَا الْأَمْرَ خَيْرٌ لِي فِي دِينِي وَمَعَاشِي وَعَاقِبَةِ أَمْرِي فَاقْدُرْهُ لِي وَيَسِّرْهُ لِي ثُمَّ بَارِكْ لِي فِيهِ وَإِنْ كُنْتَ تَعْلَمُ أَنَّ هَذَا الْأَمْرَ شَرٌّ فِي دِينِي وَمَعَاشِي وَعَاقِبَةِ أَمْرِي فَاصْرِفْهُ عَنِّي وَاصْرِفْنِي عَنْهُ وَاقْدُرْ لِيَ الْخَيْرَ حَيْثُ كَانَ ثُمَّ ارْضِنِي بِهِ
Allahumma innee astakheeruka bi ilmika wa-astaqdiruka biqudratika wa-as'aluka min fadhlika al-adheem. Fa innaka taqdiru walaa aqdiru. Wa ta'lamu walaa a'alamu wa anta allaamul ghuyoob. Allahumma in kunta ta'lamu anna haadhal-amr khayrun liy fiy deeniy wa-ma'aashiy wa-'aaqibat amriy, fa'qdruhliy wa-yassirh liy thumma baarik liy feehi. Wa in-kunta ta'lamu anna haadhal amr sharrun liy fiy deeniy wa-ma'aashiy wa-'aaqibat amriy. Fa asrifh annee wa-srif 'anhu. Wa aqdurh liyal khayr hayth kaana thumma a-rdhiniy bihee
O Allah, I ask You to show me what is best, through Your knowledge, and I ask You to empower me, through Your power, and I beg You to grant me Your tremendous favour, for You have power, while I am without power, and You have knowledge, while I am without knowledge, and You are the One who knows all things unseen.
O Allah, if You know that this matter (mention the thing to be decided) is good for me in my religion and in my life and for my welfare in the life to come, then ordain it for me and make it easy for me, and then bless me in it.And if You know that this matter is bad for me in my religion and in my life and for my welfare in the life to come, then distance it from me, and distance me from it, and ordain for me what is good wherever it may be, and help me to be content with it."
read more about the Istikhara prayer @ http://www.justmuslim.org/articles/increasing-faith/59-istikharah-prayer