Yes, the above statement will just about get you there.
However, there is a key step missing.
1) Create your list in Excel i.e. in Sheet 2.
The list may be:
2) Select the list, highlight all cells.
Go to Data > Data Validation > Allow - list, source and highlight cells in the list, click OK.
3) The list populates.
4) Use / reference this list in another Sheet in the workbook.
5) Copy a cell from the list from Sheet 2, paste into the cell you want to use the drop down from in Sheet 1.
6) Click in the cell in Sheet 1, select data validation, in the cell reference - highlight the entire list and click OK.
7) You will see the reference
=Sheet2!$A$1:$A$3 - hey presto the list works
End of command.