Begin by teaching your child the alphabet, if they do not already know it. They may be able to sing their ABCs, but do they know what each letter looks like? There are free programs that can help your child learn their ABCs online. Two such programs are Starfall ABCs and Learn Your ABCs by Fisher Price.
Teach your child the basic and most frequently used sounds for each letter, such as hard consonants and short vowels. There are good, free resources for this online, such as Starfall ABCs and Phonics Learning Game by Fisher Price. There are also excellent paid programs like Reading Kingdom.
Proceed to harder concepts as your child masters the easier ones. For example, begin teaching the difference between hard and soft consonants, long and short vowels and introduce silent E and the "schwa" sound (when a vowel makes an 'uh' or 'er' sound instead of the long and short shounds that have been taught.) A good, free resource for advanced phonics concepts is Starfall's Learn to Read section, which has instructional videos and games.
Make a list of age appropriate sight words that are frequently used in children's early reader books. A sight word is a word that a reader is expected to know without having to sound it out. They are also usually frequently-used words. Begin with very easy words that would be difficult for your child to sound out, like 'the,' 'from,' 'was' and 'says.' Also include words that sound the same, but have different spellings, like 'two,' 'to,' and 'too,' and longer words that are frequently used in these books, like 'friend' and 'mother.' The free online program "Sight Words with Sampson" includes four levels with a total of 28 sight word lists. Each list contains eight sight words. Children can learn words, build words and identify words from each list and then take a quiz.
Find early reader stories that will help your child practice her new skill. The more she reads, the faster she will master this skill. Gradually move on to more difficult stories as she conqures easier ones. The Starfall "Learn to Read" section has free early reader stories, and their "I'm Reading" section has free advanced reader stories.
Play interactive online reading games with your child. This will help reinforce the rules that she has already learned, and timed games will show how well she can perform under pressure.