How to give dmg a custom icon?

In the Configurations tab Custom Volume Icon is checked.

When I click on Set Icon… it allows me to choose a .PNG file or a .ICNS file but then the file dialog stays open as if it wants me to choose yet another file.

No matter what file I choose, the .DMG still has its default volume icon.

What am I missing?

Please see the Manual instructions here. The second dialog is asking you to choose the source folder that you will use to make your disk image.

I’ve done that. The DMG still mounts with the generic hard disk icon.

When I double click on the DMG, the window that opens up has the right icon though.

Thanks. That explained it.

The custom icon didn’t appear until I mounted the DMG on another Macintosh. I assume it’s a caching issue that kept the generic icon on the machine with DropDMG.