I recently discovered something that I previous thought was impossible: PNG-8 files can store Alpha Transparency in the same way as PNG-32 files can. Not Indexed Transparency (like GIFs), but full on Alpha Transparency.
(You can learn more about this here: http://blogs.sitepoint.com/png8-the-clear-winner)
Apparently it's possible to do this using Fireworks, but I can't find a way to do it using Photoshop.
Does anyone know a way of enabling this incredible feature in Photoshop? Through add-ons or by any other means? It's so incredibly useful for web developers that I can't believe it's not been included in the latest version (or any version) of PS!
Best Answer
An updated answer for 2015 tech.
I'm using Photoshop Creative Cloud 2015 (for PC, I don't know if there is any difference on Mac) and there is a choice to
"File > Export > Export as"
There aren't a whole lot of options to adjust from here, but if you select PNG-8 format it will automatically use full (or what appears to be full) alpha transparency in a PNG-8 format. Mileage may vary depending on image size and number of colors as to whether or not the result will actually be smaller than a regular PNG-24. On average the images I have been working with have resulted in about 1/3 final file size when compared to a PNG-24 of the same image.
NOTE: Check that the image mode is NOT indexed (lock icon on the layer) as I was not able to get the alpha transparency to work otherwise. I used RGB mode with successful results.