This is the stuff that late night infomercials are made of. You take a pill or use some sort of ab contraption and miraculously your fat turns into muscle in only a few days! Unfortunately turning fat into muscle is a myth and doesn't actually work like that in real life. Fat and muscle are made up of entirely different tissues so "turning fat into muscle" is more than just a ine step process. "Turning fat into muscle" requires: 1) burning fat and, 2) building muscle.
Fat is used by your body to store energy while muscle is used for movement and some involuntary functions (pumping blood, digesting food, breathing). Muscles are made out of protein while fat stores are made up of... fat.
There is no mechanism to turn fat into protein, it just isn't possible. Turning fat into muscle is a 2 step process which requires you to burn fat and build muscle in it's place. Getting rid of fat is accomplished through exercise that burns a lot of calories. Cardio is a great example. You can run, bike, swim and play sports.
To lose body fat you should dedicate 3-5 days per week for cardio lasting 30-60 minutes per session. The more you go, the quicker you'll lose the fat. While you can lose 1-2 pounds per week, building muscle to take the place of fat is a much slower process. Read more about Guidelines for Cardiovascular Training.
Short of taking steroids, there's no way you can gain as much muscle as the fat you're losing. Muscle grows at a very slow pace but with proper exercise you can gain a significant amount. Muscles grow when you stimulate them. When you lift weights at a gym, the muscle becomes damaged and when you rest, it's rebuilt and becomes stronger than before. Doing this over a long period of time will make you stronger and give you bigger muscles.
To build muscles in the quickest amount of time, dedicate 2-4 days per week for a strength training routine. You can do a total body workout or focus on one or two muscle groups. Read more about Guidelines for Resistance (Strength) Training.
Remember that turning fat into muscle is a long term goal. Even thought it's a 2 step process, you don't need to accomplish one step to move onto the next.
The Bottom Line
Losing fat and gaining muscle can be a simultaneous activities meaning one part of your workout should be geared towards losing fat and the next for gaining muscle. You won't see the desired results overnight but you should begin to notice a difference in your body fairly quickly.