“With GarageBand 4.1.1 you can export your original song, your original audio recordings, or use Apple Loops and iLife jingles to create a custom ringtone for your iPhone,” Apple’s support article #307108 states.

Here’s what you need:
• GarageBand 4.1.1 or later
• iTunes 7.5 or later
• iPhone with software version 1.1.2 or later

To create a custom ringtone:
1. Set up a cycle region that covers the area you wish to use in the GarageBand song. Note: This area must be 40 seconds or less in length.
2. Once the cycle area has been set, choose Share > Send Ringtone to iTunes.

More info here.

MacDailyNews Note: We just tested this with an MP3 and it worked to create a new free ringtone in iTunes that syncs and works with our iPhones.