For every tool in Photoshop's Tool Box, the user may choose to fully reset JUST that tool to its default settings.
To do this, look up to the Options Bar. On the far left side you will see a button which displays an icon of the currently selected tool. This is the Tool Preset picker. Right-click (or ctrl+click) the button to get a contextual menu with two entries:
Reset Tool and
Reset All Tools
The first thing to try when a tool is not acting like you expect it should is to apply the command "Reset Tool" from this menu.
Often this will cure a problem, and by starting your Photoshop troubleshooting with this procedure you aren't resetting Photoshop's entire behavior and environment to factory default in a wholesale manner. Instead, you're just getting that particular tool back to its default settings, leaving the rest of Photoshop's settings alone.
Also see the attached graphic in the next post.
If this doesn't cure the problem, you can delete and reset all of your Photoshop preferences to their factory default values.
1. Simultaneously hold down Shift+Option+Command keys
2. Continue to hold down those keys, launch Photoshop and wait until you see the prompt asking if you wish to "delete the Photoshop settings file."
3. Release those keys. Click "Yes."
You should now have a fresh set of preference settings, returned to their default values.
(Thanks to Len Hewitt and Phos)
Thank you Phos for this alternate:
I was just sittin' in the liberry, and pulled one of my old Photoshop User magazines out of the stack...Jan/Feb 2006, to be precise.
Can't believe I didn't remember this tip from Peter Bauer where he devoted an entire page of his From the Help Desk column about Resetting Individual Tools back to factory default.
I wrote up all that mess and made that detailed screen shot currently in the FAQ section, when all that is required to bring up the reset functions is a Control + Click (Right Click under Windows) on the Tool Presets icon on the far left of the Options Bar.
(instead of navigating to the menu of the flyout panel, by clicking on the preset picker, then on the left facing arrow to display the menu and selecting reset tools)
Even crazier? Nobody ever pointed this out to us!
Updated thread with more legible text, and incorporated the suggestions in the original post.
If you get the reset Photoshop settings prompt at startup without holding down any key, and are running Mac Os 10.6.5 or 10.6.6, see this thread: