If you have basic skill in Photoshop, it's pretty easy. I usually work in layers, so that's the system I'll describe here. It can be done without just as easily. For the technique to work, it's best to be start with an image that looks down on the subject, and wide-angle lenses also work best.
1) Duplicate the background as a new layer.
2) Apply some blur to the layer. With this image, I used the Filter>Blur>Lens Blur and a very high Radius (ymmv). Gaussian Blur works too, if you don't have access to Lens Blur.
3) Mask out a section of the blurred layer to allow the sharp original to show through. I used the Rectangular Marquee tool with lots of Feathering.
If done well, this will accomplish the "depth of field" effect. To make it really look like a miniature, it's a good idea to pump up the colours and contrast. In this case..
4) Add a Hue/Saturation layer set to +40
5) Add a Levels adjustment layer and cap both White and Black points.
If you don't work in layers, you just need to make your selection first (probably select the area to be sharp and choose Selection>Invert Selection to flip it to the rest of the image) before applying the Blur, and follow it up with a Hue/Saturation and Levels adjustment.
This is my first attempt at it and it worked out pretty well, but with a bit more work I could probably improve the "depth of field" zone to make it look better.