How to make dmg file bootable?

You cannot boot from a .dmg image. If the .dmg contains a bootable system then you would have to burn it to a CD or DVD.

If you want to create a bootable CD for emergency purposes you can create one using a freeware utility called BootCD (only usable with Panther) that you can download from www.versiontracker.com or www.macupdate.com.

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With Disk Utility, it's a .cdr file that you need to create, not a .dmg
(choose the option: "CD or DVD Master").

See if you can just rename the same file with the new .cdr extension. If this doesn't work, you'll have to create a new one.