Genesis 1:26 declares that God created man in His image. Being made in the "image" or "likeness" of God means that He made us to resemble Him in some, but not all, ways. We do not resemble God in the sense of God being flesh and blood as we are, because God is spirit (John 4:24) and He therefore exists without a flesh-and-blood body. One way in which Adam's body did mirror God's is that it was created in perfect health, sinless and not subject to death. With the fall of mankind because of Adam and Eve's disobedience, that aspect of our likeness to God ended. Sin entered the world and along with it, sickness, disease and death.
What does it mean that humanity is created in the image of God?
The phrase "made in the image of God" refers not to the physical, but to the immaterial part of man. In the likeness of God, man has a soul/spirit that sets us apart from animals and makes us just a little lower than God's other glorious creation, the angels (Hebrews 2:7). It is our spiritual nature that enables us to commune with God and makes us like Him mentally, morally, and socially. We are not to misinterpret this to mean that we are like Him in the sense of being 'little gods' ourselves, but rather that we share some of His characteristics, although on a limited, finite scale.
We resemble God mentally in that man was created as a rational being with a certain amount of volition. We can reason and, within limits, we can choose, a reflection of God's intellect and freedom. We have the same creative impulses that God has, proclaiming our having been made in God's image anytime someone invents a new and better machine, writes a poem, creates a symphony, reasons through a problem, or performs any of millions of other mental calculations.
Morally, before the fall of Adam and Eve into sin, man was righteous and morally perfect. All of God's creation (mankind included) was deemed by Him to be "very good" (Genesis 1:31). Even though it is now tainted by sin, our "moral compass" is a vestige of that original state of sinlessness. Each time a culture of people writes laws to protect the innocent, and each time we are repulsed by evil, or attracted to good behavior, we reflect God's own moral nature which we share.
Socially, man's desire for communion with his fellow man reflects God's triune nature and His love. God made the first woman because He understood Adam's need for the company of another human being like himself. Being alone is not good for man (Genesis 2:18). All human relationships—marriage, friendship, Christian fellowship—demonstrate the fact that we are made in the likeness of God. Just as the three Persons of the trinity share perfect social communion with one another, so do we desire social interaction with others of our species.
When Adam made the choice to rebel against his Creator, the image of God within mankind was marred, and Adam passed that damaged likeness on to all his descendants (Romans 5:12). Today, we still bear the image of God, but that image has been distorted by sin. Mentally, morally, socially, and physically, we show the effects of sin.
But God has chosen to offer the hope of redemption to mankind, a redemption that is only available by God's grace through faith in Jesus Christ as our Savior from the sin that separates us from God (Ephesians 2:8-9). Through Christ, we are made new creations in the likeness of God (2 Corinthians 5:17), and by faith in Him, we once again become partakers of His divine nature (2 Peter 1:4) and once again more accurately reflect His image.
Why did God create humanity?
What does it mean to be fearfully and wonderfully made (Psalm 139:14)?
Can man live without God?
Do we have a body, soul, and spirit? Are we made of two parts or three? Dichotomy or trichotomy?
What is the origin of the races of humanity?
Truth about Humanity