I'm going through this right now with my two year old. First I read the book, The Everything Potty Training... or something like that. Then I had my husband buy two big tarps, because I didn't want my little one peeing or pooping on the carpet. I set them up in the areas we frequent the most.
Then I set a potty chair that was easy to access. Let him play with it and stuff the first day. We also had potty seats to put on our bathroom toilets. We got him underwear and everything and I made sure I had no plans for the week, so I could just monitor him.
The underwear didn't work. He just peed in them. He doesn't seem to mind being wet or anything. So then I tried what my sister-in-law did. Naked from the waist down. This worked much better. Not at first though. The first day, I kept the juice and flavored drinks flowing, (normally we just drink water, so he was really happy to be drinking a lot). This made him pee a lot, so everytime I'd catch him in the act, I'd swoop him up and sit him on the potty... and tell him to "hurry to the potty... pee in the potty" I even noticed when he was ready to poop. He had that far off look of concentration, so I swooped him up and he went in the potty. He looked rather worried the first time we were congratulating him for pooping on the potty. I guess this was just confusing to him at first.
I'd tell him he had to hurry to the potty, when he had to pee or poop. He did a little better the second day and each day after that. We'd do little practices too. Just letting him sit on the potty and pee. We also used the M&M treat for each time he peed or pooped.
It's been almost a week and I don't even have to watch him anymore. He just runs to the potty on his own, he loves it. Especially taking the pot to the big toilet to empty and flush and then the handwashing routine. It just takes getting used to and knowing what to do. They're so used to diapers. Take them off and it forces them to learn this new skill.
Now, I'm thinking about moving into trying it with loose pants or underwear. I'm still using diapers at naptime and bedtime and he seems to always have a wet diaper when he wakes up. He even pooped in one at one nap on the first day. I think he'd just prefer the diaper, because he's always worn it and he's just going to have to get used to this new thing.
Good luck... I know how hard it is and how frustrated I was at first.