How to Freestyle Rap (from wikihow.com)

Steps
-You need to listen to a lot of rap and hip-hop music so that you can learn from others. Study other rappers' skills until you can form your own style. This is also good to find some solid beats that you may want to try rapping over.
-Listen to other rapper's freestyles. Go to youtube, and watch videos of freestyle battles or download songs of rappers freestyling. Listen to how they do it, and finding the cadence of your voice before trying to rap in time to music.
-Write. The more you write raps and rhymes, the more raps and rhymes you ultimately know. This way, when you are freestyling and you say the word you intend to rhyme with something else, you can think of something quickly because you have used these rhymes before. For example, if you are going to use the word Veracious for the first time, it would be very difficult to think of a rhyme for it off the top of your head. (Side note - Don't just repeat whole verses, or even whole bars or lines for that matter, this is called spitting a "Pre-written verse", and defeats the purpose of freestyling in the first place.)But you need to build a name. So spitt a couple pre-written verses so you can get your street cred up. so just incase you spitt something garbage you have your history prooving your actually good. A good example is cassidy. he rapped pre-written raps a couple of times but the down fall of doing it he did the same verse a couple of times.
-Have a back-up line. This is like the fire extinguisher sitting in the red box that's mounted on the wall of rap. It's to be used only in emergencies. This is a line, or a phrase that you use when you can't think of anything else just so you can buy yourself some time to go back out on a tangent. The better you get at freestyling the smaller this phrase will become. Really good freestylers will use a one syllable filler line like "Yo" while less talented freestylers will use lines that are longer like "Matter of fact". Your Back-UP, or "Filler" line, will be something that you just start saying without realizing it.
-Begin with the downbeat. The vast majority of rap music is written with a traditional four-four time signature, also known as Common Time. This means that every measure will have a strong downbeat at the beginning: ONE-two-three-four-ONE-two-three-four. In most rap songs, the rappers allow the beat to come in at the beginning and fade out at the end without rapping over it. Use these "blank" spaces to try out your own raps. Do this in the privacy of your own home first, because chances are, you will sound like exactly what you are: a novice rapper with no skills.
-Stop thinking. Just spit and go with your gut feelings, and just let yourself fall into it. If you think too much about your next line you are going trip up and stumble over it. Just let your mind flow freely from one thought to the next. Practice and writing will help you learn how to do this.
-Come up with a good, solid,different, non-biten punch line that will make the listeners go crazy. useing similies are for beginners for a punchline artist. like when cassidy says"goin platinum like sisqo hair." the next level is metaphores or in other word "word play".like when jay-z said"young niggas dat blasphemy no religion". a line that you won't have to explain but at the same time people would have to think about. another thing that makes the croud go crazy is a one liner. lil wayne displays that in alot of his songs. ex"dese niggas can't see me im on my casper shit, im above average."or"i see she wearin dem jeans dat show her butt crack, ma girls can't wear dat, why, dats wear my stash at." in other words a line dat will forever be remebered as yours, and will be repeated. Agood way to see if you made that impact with your lies is to look at people myspace page names. if it was something good they will put it as their name.
-Once you feel relatively comfortable, invite some people to watch and critique your skills. Have them hold up various items and see if you can incorporate them in your raps. Note: Your mother is ok, just don't be too profane and don't let anyone in the streets know your mom is helping you with your skills.
-Play Games. The great part about this is that you don't always have to have friends who rap to play certain games. There are several games you can play. Use your creativity to come up with your own if you want, but heres two games. The first one is Pick a Topic/Item, and what you do is you have a friend just pick a topic, or an item in the room, or even just a random word and say it out loud. Then you start freestyling and trying to rap about that topic, item or use that word. This forces you to keep on your toes because your friends are the ones leading the direction your freestyle goes. Another game that is quite effective is not a game at all really. It's called Cyphering, you need a friend(s) who raps to do this one, and what you do in it, is get at least one friend who raps and one of you just start freestyling about whatever. When you "Lose the flow", or your time expires, (However you guys/girls choose to do it) your friend takes over and does his/hers until he/she "Loses the flow" or their time expires, and then you pick it back up. The key to this exercise is to start freestyling as soon as they stop. Try to run with the same topic or rhyme scheme. Here's another one. Try rapping nonstop for a few hours. Start with a single topic in your surroundings and branch out to either narrate in verse or describe objects or people. People around you may get annoyed, but it's really fun!
-Hook it up. Get some up-and-coming producers (they're everywhere) to provide you with some killer beats to work with. This will impress people more than using beats from other songs that many people have already rapped over. However if you want to compete as a freestyle MC in battles you won't get to choose your beats, you'll have to rap over whatever instrumental the DJ plays, so get used to rap over all type of different beats and try to develope a style that is as versatile as you can.
-Get some exposure. If you have connections with a radio show, see if you can get on to display your skills. Otherwise, show up at some rap battle events and try your hand. Hopefully, you won't get booed off the stage.
-Practice inside your head while doing your every day things, walking down the streets, in the bus or train, riding a bicycle... it's even better if you carry some instrumental beats on your discman or mp3 player to inspire you.

Tips
-This is Naz-T talking to you, Freestyle Rap known as Freetyling or Off the Top rhyming is as much as an art as it is a skill. The ability to "spit" or "kick" a rhyme at a moments notice without any premeditated or prepared rhymes is a skill that every Emcee should possess.
-Try to impose as much verbal assault as you can
-Don't give up, if you mess up, thats alright just get back to it like nothing happened if it is truly off the tip then it is expected rarely.
-Do not get into a rap battle if you cannot freestyle. Hint: Practice at home or with your friends.

Warnings
-Everyone has seen "Nycks vs ENJ" and "Math vs Dose" (Youtube those for the vids). There is nothing wrong with dissin, Freestyling is supposed to be a fun time for all, and yes, things get heated. Respect a persons space. Don't get in someones face, and spit at them and expect to walk away ok. Because 9 times out of 10, you are going to get punched.
-Don't drop names. It's as simple as that. You drop a name, you are going to start trouble. Unless you are with friends who can take a diss. Name Dropping will get you stomped.
-Freestyle battles are meant to be a fun thing, in which the "disses" are not to be taken seriously or personally.
-Don't make things to personal, talk about things that are visible, like some ugly shoes, and stay relevant