Rendering menu > Advanced Lighting > Advanced Lighting Dialog > Select Advanced Lighting rollout > Choose Light Tracer from the drop-down list.

Character lit by skylight and one spotlight, and rendered with light tracing.
Model by Sonny Sy — orange_3D@yahoo.com — www.geocities.com/orange_3D
The Light Tracer provides soft-edged shadows and color bleeding for brightly-lit scenes such as outdoor scenes. Unlike radiosity, the Light Tracer does not attempt to create a physically accurate model, and can be easier to set up.

Outdoor scene lit by skylight and rendered with light tracing.
Tip: Indoor scenes can use light tracing, but radiosity is usually the better choice for indoors.
To get a quick preview of the effect the Light Tracer will have, lower the values of Rays/Sample and Filter Size.
The result will be a very grainy version of the full effect.
Another way to get a quick preview is to make sure Adaptive Undersampling is turned on. In this group, set Initial Sample Spacing equal to Subdivide Down To. In the General Settings group, lower the value of Rays/Sample, and set Bounces equal to 0.0. This gives a rather blotchy but fast preview of the rendering. Increase Rays/Sample and Filter Size to improve the image quality.
In general, you can get good, fairly quick results with a lower Filter Size as long as Rays/Sample has a high value and Adaptive Undersampling is turned on.
To improve rendering time, use the Object Properties dialog to disable light tracing (or radiosity solving) for those objects that don't have a great impact on the final effect.
Tip: You can also use the Advanced Lighting Override material to alter the effect of light tracing on particular objects.
Experiment with the adaptive undersampling settings, which restrict light tracing to the areas of your scene that need it.
To increase the amount of color bleeding, increase the value of both Bounces and Color Bleed. Color bleeding is usually a subtle effect.
If there are glass objects in the scene, increase Bounces to be greater than zero. (Be aware that this will increase rendering time.)
If the main scene lighting is a Skylight, and you need specular highlights in your scene, add a second light: for example, a Directional light that parallels the Skylight. Make sure Shadows are turned on for this light, and on the light's Advanced Effects rollout, turn off Diffuse.
If the objects with highlights don't greatly affect shadows or color bleeding, you can leave Diffuse on for this light, and use Object Properties to exclude the objects from light tracing.
Set Key filters are not taken into account when you animate Light Tracer settings. If you wish to use Set Key to create keys for animating the Light Tracer parameters, SHIFT+right-click the spinner to create those keys.
Important: If you use a texture map with the Skylight, you should use an image-processing program to thoroughly blur the map before using it. This helps reduce variance and the number of rays needed for light tracing. You can blur the map beyond recognition, and it will still look correct when used for regathering.
To set up a scene for the Light Tracer:
This is a typical use case.
Create the geometry for an outdoor scene.
Add a Skylight to illuminate it.
One or more spotlights can also work well. If you use the physically based IES Sun or IES Sky lights, using an exposure control is essential.
Choose Rendering > Advanced Lighting. On the Select Advanced Lighting rollout, choose Light Tracer from the drop-down list.
Active should turn on, and the Parameters rollout for the Light Tracer should appear.
Adjust the Light Tracer parameters, right-click the viewport you want to render to make it active, and then click Render Scene.
Adjust your rendering settings, and then click Render.
The scene renders with soft-edged shadows and color bleeding.

Global Multiplier—Controls the overall lighting level. Default=1.0.

Global multiplier settings
Left: Decreasing the global multiplier
Right: Increasing the global multiplier
Object Multiplier—Controls the level of light reflected by objects in the scene. Default=1.0.
Note: This setting has little effect unless Bounces is greater than or equal to 2.
Sky Lights toggle—When on, enables regathering from the sky lights in the scene. (A scene can contain more than one sky light.) Default=on.
Sky Lights amount—Scales the intensity of sky light. Default=1.0.

Above: Increasing the sky lights value
Below: Increasing the object multiplier
Color Bleed—Controls the strength of color bleeding. Color bleeding results when light is interreflected among scene objects. Default=1.0.
Note: This setting has little effect unless Bounces is greater than or equal to 2.

Above: Excessive color bleeding
Below: Color bleeding eliminated by setting color bleed to zero
Rays/Sample—The number of rays cast per sample (or pixel). Increasing this value increases the smoothness of the effect, at a cost of render time. Decreasing this value results in a grainier effect, but renders more quickly. Default=250.
Tip: To get a “first draft” preview of the effect of light tracing, reduce the value of Rays/Sample and the Filter Size.

Changing the number of rays per sample.
The higher the value, the less grain.
Color Filter—Filters all light falling on objects. Set to a color other than white to tint the overall effect. Default=white.
Filter Size—The size, in pixels, of the filter used to reduce noise in the effect. Default=0.5.
Tip: Filter Size is especially useful when Adaptive Undersampling is turned off, and Rays/Sample has a low value.

Changing the filter size.
Increasing the filter size reduces noise in the rendering.
Extra Ambient—When set to a color other than black, adds that color as extra ambient light on objects. Default=black.
Ray Bias—Ray Bias, like Ray-Trace Bias for shadows, adjusts the positioning of the bounced light effects. Use it to correct rendering artifacts, such as the banding that can occur when an object casts shadows on itself. Default=0.03.
Bounces—The number of light-ray bounces that are traced. Increasing this value increases the amount of color bleeding. Lower values give faster results with less accuracy, and typically produce darker images. Higher values allow more light to flow through the scene, resulting in brighter, more accurate images at a cost of rendering time. Default=0.
When Bounces equals 0, the Light Tracer disregards volumetric lighting.
Tip: If your scene has transparent objects such as glass, increase Bounces to be greater than zero. Be aware that this increases rendering time.

Increasing the number of bounces increases the level of global illumination and the amount of color bleeding in the rendering.
Cone Angle—Controls the angle used for regathering. Reducing this value can result in slightly higher contrast, especially in regions where lots of small geometry casts shadows on a larger structure. Range=33.0 to 90.0. Default=88.0.

All rays initially cast are limited by the cone angle
Volumes toggle—When on the Light Tracer regathers light from volumetric lighting effects such as Volume Light and Volume Fog. Default=on.
For volumetric lighting to work with light tracing, Bounces must be greater than 0.
Volumes amount—Multiplies the amount of light regathered from volumetric lighting effects. Increase to increase their impact on the rendered scene, decrease to decrease their effect. Default=1.0.

Increasing the volumes amount increases the effect of volumetric lighting in the rendering.
These controls can help you speed up rendering time. They reduce the number of light samples taken. The ideal settings for undersampling vary greatly from scene to scene.
Undersampling initially takes samples from a grid superimposed on the pixels of the scene. Where there is enough contrast between samples, it subdivides that region and takes further samples, down to the minimum area specified by Subdivide Down To. Lighting for areas not directly sampled is interpolated.

Initial sampling uses a regular grid.

Adaptive undersampling concentrates on areas of transition.
Tip: If you use adaptive undersampling, try adjusting the Subdivision Contrast value to obtain the best results. The effect of this control depends on the value of Rays/Sample.
Adaptive Undersampling—When on, the Light Tracer uses undersampling. When off, it samples every pixel. Turning off undersampling can increase the detail of the final rendering, but at a cost of rendering time. Default=on.
Initial Sample Spacing—The grid spacing for the initial samples of the image. This is measured in pixels. Default=16x16.

Initial sample spacing values
Subdivision Contrast—The contrast threshold that determines when a region should be further subdivided. Increasing this value causes less subdividing to occur. Too small a value can cause unnecessary subdiving. Default=5.0.

Decreasing the subdivision contrast threshold can reduce noise in soft shadows and bounced lighting.
Subdivide Down To—The minimum spacing for a subdivision. Increasing this value can improve render time at a cost of accuracy. Default=1x1.
Depending on the scene geometry, grids larger than 1x1 might still be subdivided below this specified threshold.
Show Samples—When on, sample locations render as red dots. This shows where the most sampling has taken place, which can help you choose the optimal settings for undersampling. Default=off.
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