Apple removed the ability to create ringtones in iTunes 10. You can still buy pre-cut ringtones on your iPhone directly from the store, or as the post suggests above, use Garage Band (on a Mac) to create ringtones for free out of any of the songs you have in your library.
As a side note, when custom ringtone creation was around, it always came at an additional cost (over and above the song price).
And as always, there are probably about a million apps available on the app store that can be used for creating ringtones. Just search around a bit.... Google is your FRIEND 🙂