Historic photo restoration is such satisfying work. With a good scanner and plenty of patience, you can work wonders.
Step 1:
This old photo had been sitting in an oval frame for many years.

Step 2:
I start with a general contrast adjustment. This improves the blueness of the shadow areas, but still leaves a lot to be done.

Step 3:
I need to balance the sunlight-damaged part with the better-preserved part. I roughly select the oval frame ...

Step 4:
... and adjust the colours to match. This leaves a visible ring around the edge ...

Step 5:
... which I repair. Now I have a uniform image to work on.

Step 6:
I select just the skin ...

Step 7:
... and bring some life into it.

Step 8:
Then I invert the selection, and make some adjustments to the rest of the photo. I take the last traces of blue from her hair, add some contrast to her clothing, and whiten the background.

Step 9:
Finally, I even out the skintone a little more, then whiten her eyes and teeth, and add some colour to her collar and ribbons.
Roll mouse over to compare original to final:
If you have a question about this method, or any Photoshop question, please visit me at my "Ask Damien" Facebook page.
All content © Damien Symonds 2012