iPhone Dev Team have finally released their much awaited software method to unlock iPhone 3G.

Its also the world’s first software solution to unlock iPhone 3G and
it supports all firmwares including baseband firmware 02.28.00 which
they had earlier indicated might not be supported.

Update (Jan 2nd, 2009):

The dev team has released an updated version of their yellowsn0w application (v0.9.4) to unlock iPhone 3G.

Update (Jan 3rd, 2009):

The dev team has released an updated version of their yellowsn0w application (v0.9.5) which fixes quite a few problems including some STK (SIM Toolkit) issues.