Originally posted by: llamaparsnip
Draw your ellipse, copy and paste it (ctr-c, ctrl-v) then scale the copy up by 110%. Give it the colour you want . Cut your photo (ctr-x), then select the smaller ellipse and click Edit > Paste Inside. If you want an inner shadow, as in your example, click on the ellipse (the vector mask one) in the layers palette and add an inner shadow.