Step1
Pick a referee. One person needs to run the game from the outside and keep everything moving.
Step2
Gather your players and figure out how many should be on each team. Most players will be innocent "villagers," but a few of them will secretly be members of the mafia. Opinions vary on what the best balance is, but a good starting point is one mafioso for every three or four villagers. If you've got a dozen players, try having three in the mafia. You can tweak these numbers until it feels right for your group.
Step3
Choose teams. Once you know how many players you've got and how you want to split them, assign players their roles. In the 12 players and three mafioso example, you'd pull nine red cards and three black cards from your deck, then shuffle and pass them around. Those who draw the black cards are in the mafia. If you don't have cards, slips of paper or pretty much any improvised method will work. All that matters is that no one can watch this process to tell whether someone is in the mafia.
Step4
Explain the basics to your players. The game proceeds in turns. Each night, while the village sleeps, the dreaded mafia meets and assassinates one villager. Each day, the terrified mob of villagers accuses people of being in the mafia and hangs someone. Each side's goal is to eliminate the other before they're wiped out themselves. The game is largely about denouncing people as mafia members, and eloquently proclaiming your innocence. There's no real way to know who's in the mafia and who isn't. "Look at those shifty eyes! She's obviously in the mafia!" and "I've never trusted that guy," are both perfectly valid reasons to accuse someone. The sheer injustice of it all is part of the fun.
Step5
Start with the mafia. Announce that night is falling and everyone is asleep. Have all your players close their eyes. Once you're satisfied, have only the mafia members open their eyes. Tell them to silently point out the victim they want to eliminate. They'll probably point to different people but after a few silent gestures and facial expressions, they should manage to agree on someone. Then have the mafia members close their eyes again. (You want to separate these steps carefully to make sure no one sees anything they shouldn't.)
Step6
Reveal the victim. Tell everyone to open their eyes, and tell them who has been discovered dead with the dawn. The unfortunate victim is out and can now keep his eyes open and observe the game. But he can't speak. At all. (He's dead.) He'll soon find out who was in the mafia, but it will be cold comfort.
Step7
Let the villagers execute someone. Open the floor to wild accusations. This is where the players get to have fun role playing, making impassioned speeches and betraying each other. The mafiosi get to participate in this debate as well - their goal being to avoid suspicion and convince the villagers to do their work for them by executing innocent citizens. Eventually the group has to choose one person, who is summarily hanged and is out of the game. Let the debate go on as long as people are having fun, but be ready to step in and enforce a decision if things seem deadlocked. As with the mafia's victims, the eliminated players can't speak, even to reveal whether they were really in the mafia or were innocent victims of mob panic.
Step8
Alternate turns until one side wins. Play continues this way, with one player eliminated each night and one player eliminated each day, until one side has won. The villagers win if they completely eliminate the mafia. The mafia wins if it outnumbers the remaining villagers. (They don't have to actually eliminate the rest of the villagers one at a time.)
Step9
Play another round. If everything went well, the game should have taken maybe 15 minutes to half an hour - depending on the size of your group. If everyone had fun, consider playing again and letting people try out the other side for a change.
Novice 
