Make a new Layer so you do not mess with the back ground.

Pick black as a color -

#00000

Choose the rectangular marquee tool.

Next goto :

EDIT>STROKE

Once the New window pops up, Choose 1-2 pixel width.
It's your choice. ( you can do bigger as well )

Location - Inside.

Hit ok or Enter.

Duplicate this layer.

We are getting there.. You've now gotten a white square hiding the black square.

Using the Move Tool ( look at the tool pallet ) and make sure the white layer is selected. Nudge the square up and left one pixel by using the ARROW keys on your keyboard.

Depending on which direction you want the inset effect to come from nudge the top either up/left or down/right.

Next, in the Layers pallet select the Normal Drop Down, choose Softlight.

Viola, you've done it.. Congratulatins!