Create your "circle" as a Path, then use the Horizontal Type Tool, but click ON the Path.
Probably the easiest way to get that circular Path is to choose the Elliptical Marquee Tool, and hold down Shift+Alt to draw that circle from the center, and to constrain it as a circle. Then, with that Selection active, go to the Paths Palette/Panel, and choose Make Work Path.
Good luck, and hope that helps,
Thank you for your quick reply Hunt.
But that didn't work for me.
It just turned the selection into a solid circle around the text once I chose Make Work Path.
Am I supposed to type the text before I draw the circle or after?
I tried both ways but neither one worked.
Create the circle using the vector shape tools and create it as a path. Then use the normal text tool. As you hover over the active path, the cursor should change and display the text anchor perpendicular to the path.
In your case, you had the Shape Option selected. As Mylenium points out, you need that set to Path.
Forgive me for being a dummy. But where are the vector shape tools located?
Hit U, then the active Tool should be the Rectangle, Rounded Rectangle, Ellipse, … Tool.
Depending on your settings hitting U or shift-U will select the next one of the secondaries – or you can just long-click the Tool to expand the list and select the intended one manually.