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Preview of Final Results
Step 1Start off by opening any photo into Photoshop. This effect works best with isolated objects on black backgrounds such as the image below which I created with these Smoke brushes. There's also the Particle Smoke brushes that will work too.
Step 2To begin, we'll desaturate the image. This step is only needed if your image isn't already black & white. In the Layers palette, click on the New Adjustment Layer button then choose Hue/Saturation.
Step 3Now we'll create a new layer. This is the layer where we will be painting the colors on. Click on the New Layer button in the Layers palette. Rename this layer to "Rainbow Color". Change the blending mode to Color.
Step 4The primary colors that we'll be using are yellow, magenta, and cyan. Before we start painting, we'll use the Swatches palette so that we can quickly select those three colors. In the Swatches palette (Window > Swatches), click on the panel menu (top-right of the panel) then choose any of the CMYK swatches. When it asks if you want to replace or append the swatch, choose replace. Your swatch palette will now have yellow, magenta, and cyan as the first three colors. Now you can select one of these three colors quickly.
Select the Brush too. Right mouse click on the image and the brush options will appear. Select a soft round brush with a hardness of 0%. Don't worry about the master diameter setting yet.