I had this idea when I was looking for a way to make a Chocobo Dungeon inspired pendant. As some of you may know, Chocobo has a shiny, multicolored puzzle piece on it's bag. I figured it would be a nice way to re-use a scratched or obsolete CD and I made three different shapes of pendants for jewelry, keychains, bag/cell phone charms.
Step 1: Material
For this you will need...
A dremmel kit with different bits
Protective glasses and gloves
A beading, wiring kit
This is a very messy project, so I suggest you work outside or in a workshop. Hot pieces of plastic fly away a lot while carving the shapes, so you will REALLY need gloves and glasses.
Also, I noticed that different brands and types of CD's / DVD's react differently to the carving tools. Some of them lost their backing, or separated in two differents layers. Make more pieces than you need and expect some of them not to come out the way you want them to.