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In older versions, there was a button in the picture toolbar which I could click, and then select a color on a picture. Then that color would be considered transparent so it wouldn't overlap onto other images n stuff. Is there any function to do that in word 07?

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The button is still there. It's located in the picture tools tab (which is active when you select a picture), at the far left under "Recolor".

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See this article :

Change the brightness, contrast, or transparency of a picture

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Quoting the relevant part helps to avoid link rot. – ChrisF Sep 6 '09 at 16:35
-1 No quite provided. – BinaryMisfit Sep 6 '09 at 17:23
Ouf! OK, the relevant part is (big surprise) "Change the transparency of one color in a picture" at the very beginning of the text ... – harrymc Sep 6 '09 at 18:23
+1 Better - Now we know whether to click or not :) – BinaryMisfit Sep 6 '09 at 19:23
-1 no quote provided – Jim Fell Apr 25 '12 at 14:42

Recolor is not the same as adjusting opacity or transparency. It usually is useless for my purposes. This solution works MUCH better:

Making an image faded / transparent in Word 2007:

  • Select Insert > Shapes
  • Draw a shape (probably just a basic rectangle) roughly the size you want your image
  • Right click on your rectangle and chose Format AutoShape
  • On the Colors and Lines tab, click Fill Effects
  • Click to the Picture tab
  • Click Select Picture
  • Find your picture/logo in your files and double click to insert it
  • DO NOT check Lock picture aspect ratio, as you won’t be able to resize your picture within your shape. Unfortunately, this means your picture can be stretched, but you’ll adjust that later.
  • Click OK. Now you’re back at the Colors and Lines tab
  • Adjust the Transparency up to your desired percentage
  • Under Line, for Color choose No Color so the borders around your rectangle disappear
  • Click OK. That’s it! Now resize your image as desired, taking care to make the aspect ratio look correct (not stretched).
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-1 Does not address poster's question. – Jim Fell Apr 25 '12 at 14:43

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