Industry standards on formatting a manuscript change from time to time, and not all publishers agree on formatting. But this is what most publishers consider standard today.
Font: Times New Roman or another standard font in 12 point size.
Page Setup: One inch margins on top, bottom, and both sides.
Line Spacing: Double Spaced
First Page: Centered on Page
First Line: Title in all caps
Second Line: A Novel by
Third Line: Author’s Name
Forth Line: If you have an agent, Agented by
Left Side Header: Name, Address, Phone Number, E-mail Address
Right Side Header: Word Count
Header for Other Pages: On right side – Last Name/Name of Manuscript/Page Number
Chapter Headings: Start each new chapter on a new page about 1/3 of the way down the page. Chapter Title should be centered and in all caps. Then double space twice before starting the first paragraph of the chapter.
Paragraphs: Each new paragraph should be indented 5 spaces.
Scene Changes: To signify a scene change, type ### or *** centered on the next line. Then start a new paragraph.
Italics: Standards have change concerning italics. They used to have you underline. Now you should place italics in italics.
Spaces between Sentences: Only use one space, not two, between sentences.
Date or Setting Line at the Beginning of a Scene: If you need to have the date, day, or place at the beginning of a scene, place it in italics and don’t indent. Then start another line for the first paragraph of the scene.
Letters: If you have a letter in the body of your manuscript, indent the letter 10 spaces on each side.
Microsoft Word: If you use Microsoft Word, click here to read more about how to use templates for your manuscript.
Word Sharpeners 
Thanks, this is really helpful. I’m an aspiring author.
http://www.deirdreorr.wordpress.com
Almost no publishers want a manuscript in “Times.” It should be in Courier unless they ask for something different. Hardly anyone in the industry would tell you to use italics. You should underline words to be in italics and use other standard printer’s marks. This has NOT changed as you suggest except for dopey low-brow publishers who publish in digital format only. (Welcome to romance crappola.)
You’re talking about older standards. These are the new publishing standards since the age of computerized submissions. I do have a reputable agent that uses these standards.
The standards have not changed one iota. No editor wants to read Times when Courier is so much easier. Obviously the typsetter is the one who will be italicizing the words–not the writer. Typsetters have not suddenly changed they way they do things. The only publishers who want manuscripts like the one you describe are the bottom of the barrel digital-only publishers. In fact, they pretty much want YOU to typset the MS for them. We’re talking about junk publishers like Muse It Up Publishing who will publish just about anything. Think what you want, but please do not offer advice on a subject when it’s clear you know next to nothing about it.
Kurt, first of all, if you’re going to visit my blog, you need to show some respect. One more nasty comment, and I’ll delete your posts. Almost all publishers, including large ones, use the new standards. The old standards were made for a time when publishers used typesetters. In this computerized age, that is rare now. Most publishers will accept Courier or any other easy to read font, but Times New Roman is the standard. I do know what I’m talking about. I am an agented author submitting to large houses using this format.