Cut a piece of 1-inch-thick board the size you wish your finished wooden sign to be. You can also purchase pre-cut pieces of wood specifically made to carve wooden signs on. Use a router and a fancy bit to carve out the edge of the board in a shape or design if you like. Otherwise, simple sand the edges of the board so there are no splinters or rough edges.
Plan what you are going to write on the carved wooden sign. Use a piece of paper to write the words out and arrange them in such a way to fit and look good on the board. Use a pencil and a ruler to draw lines across the piece of wood where you will put the words.
Use letter stencils to create neat lettering for your carved wooden sign. Trace each stenciled letter with a pencil directly onto the wooden board you are using for your sign. Make sure everything is aligned neatly and evenly spaced before beginning to carve.
Carve around the outline of each letter with a V-shaped hand carving tool. This will create the depth needed to make carving the rest of the letters out easier and will prevent damage to the rest of the board when carving the flatter surfaces. The size of the V shape on the tool will depend largely on the size of your letters and the intended depth of the carving.
Use a flat-bladed hand carving tool to carve out the inside portions of the letters on your board. This can be done to the depth of the V-shaped cut on the outer edges. Take care not to slice into the wood surrounding the letters themselves. Work slowly and carefully to get an even and flat inner surface.
Sand the completed carved sign so there are no rough patches or sharp edges. Either paint of stain the sign in your choice of colors or tints. You can also paint the sign one pale color, sand the paint mostly off the flat parts, and then put a stain over it for an antique appearance.