How do you create NPCs?

So I’ve yabbered on about designing roleplaying adventures (LJ link) and running roleplaying campaigns (LJ link) in previous posts but I’ve turned my mind to another aspect of Gamemastering (GMing): Non-player characters (NPCs).

How do you create intriguing, interesting and fascinating NPCs for your players while balancing story-arc requirements?

I found in the past my NPCs were rather bland or not as engaging with the players as would have liked. With my most recent adventures, I took a different tack. I created characters that I would like the player characters (PCs) to be like. I found it very easy to get inspired that way. But I wonder is there a danger there that they overshadow the players?

(Testing, testing… this did work?)

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