1. Open a Windows Explorer window (Windows key + E).
2. Go to Tools > Folder options.
3. Select the “File Types” tab and scroll down until you see the TGA extension.
4. Click TGA so that it is highlighted.
5. Click the “Advanced” button at the bottom of the panel.
6. You should now see the “Edit File Type” panel.
7. Click the “New…” button.
8. In the “Action:” box type “TGA to VTF”.
9. Now click the “Browse…” button and locate your vtex.exe file. (It will be in “bin” directory wherever you have installed HL2. For example c:\hl2\bin)
10. The “Application used to perform action:” box should now read something like “C:\...\hl2\bin\vtex.exe" (the path may vary in yours).
11. Click in the little box next to “Use DDE".
12. In the “Application” box type “vtex”.
13. In the “Topic” box type “System”.
14. Hit OK on all the panels to accept the changes.

You can now right-click on any .tga file that you have an existing .vmt for and select the “TGA to VTF” option and Vtex will recompile your texture. This is useful for when you make changes to a texture you have previously compiled.

I found out that this works better if your tgas are in

c:\vtex\hl2\materialsrc\textures

If you have them there, the vtfs will be placed in

user\half-life 2\hl2\materials\textures

("user" is your user name in the steam folder)

Originally posted in HERE