These steps were initially published on XDA here

We have taken the instructions on XDA and added a bit of extra clarification, based on our own experience.  We have published these instructions because there are a lot of conflicting tutorials for rooting the Desire S and good, clear instructions can be extremely difficult to find, but we repeat, none of this is our own original work and all props go to nodeffect at XDA and Chit Augustin at Android Authority for the tutorial layout.

Preparation

• Take note of your device’s serial number.  Pull out your phone’s battery and take a look at the label inside the battery compartment.  Your handset’s serial number should be printed there, usually beside the label “S/N”.  You will also find it on the box your handset came in.
• Find out the HBOOT version on your handset.  With your phone turned off, press the Volume Down and Power buttons simultaneously for a few seconds.  The device will boot to a white screen showing device information, including the HBOOT version.  Take note of the HBOOT version number and reboot your phone after doing so.
• If you have HTC Sync installed, uninstall it, but leave the drivers
• Enable “USB Debugging” from the Settings » Applications » Development screen on your handset.
• Connect the handset to your computer via USB cable. When asked for a connection type, choose “HTC Sync” and just ignore warning messages saying your phone could not find HTC Sync.

Download the following file and save to your computer:

• su-2.3.6.3-efgh-signed.zip

If you have HBOOT 0.98.0002 you will also need to do these steps, otherwise skip them:

• Download Android SDK from here and extract the files to c:\windows directory
• Download fre3vo from here and store it in a temporary location like c:\temp
• Open a command prompt, navigate to the location where fre3vo is saved and issue the following commands

  cd c:\temp                                    (or wherever you saved fre3vo)
  adb push fre3vo /data/local/tmp               (push fre3vo onto phone)
  adb shell chmod 777 /data/local/tmp/fre3vo    (make fre3vo executable on phone)
  adb shell                                     (log onto phone, you'll get a $ prompt)
  /data/local/tmp/fre3vo -debug -start FAA90000 -end FFFFFFFF  (run fre3vo on phone, you should be kicked off adb shell and get back to your command prompt at the end)
  adb shell                                     (you should now get a # prompt to indicate superuser access)
  exit

• DO NOT disconnect or switch off your handset, proceed immediately onto the next section

Gaining S-OFF Using Revolutionary: S-OFF & Recovery Tool

Revolutionary: S-OFF & Recovery Tool is your best friend when it comes to unlocking the bootloader (S-OFF) and recovery of your device. Once installed on your phone, it will allow you to root it easily, explore various ROMs, and freely install custom kernels.  Follow the steps below to enable S-OFF on your HTC Desire S.

You may need to temporarily deactivate your antivirus and/or firewall software, as some security programs (e.g., Norton Antivirus) flag the Revolutionary: S-OFF & Recovery Tool as malware, even if it actually isn’t.

1. Go to the Revolutionary: S-OFF & Recovery Tool website  and download the appropriate package for your platform (i.e., Linux or Windows).  As soon as the package starts downloading, you will be redirected to a “Beta Key” form.  Fill in the form with your device’s serial number and HBOOT version number.  Press the “Generate Key” button to get your beta key.  Take note of this beta key.  You will be needing it when you run the Revolutionary tool. Note the form below says HTC Sensation, you should set it to HTC Desire S of course.
   

• By this time, the package file for the Revolutionary tool should have finished downloading.  Extract the files into one folder on your computer’s hard drive.
• Launch the Revolutionary tool (revolutionary.exe).  A command prompt window will open and will ask you for the beta key.
• Type (or better, copy-and-paste) the beta key for Revolutionary into the command prompt window.  The beta key is case-sensitive.  Press Enter to allow the tool to proceed.
• Wait a little bit for Revolutionary to enable S-OFF and unlock the rewritable NAND on your handset.
• Answer Y when prompted whether to install CWM or not. It will install the new 4.0.1.4 version of the tool

After the process is complete, you will also have ClockworkMod Recovery installed on your phone.

Rooting HTC Desire S Permanently

1. Turn off your device and reboot into ClockworkMod Recovery. (Untick the fast boot option first in Settings > Power .  Next Power Off your handset.  Now press and hold Volume down button while pressing Power at the same time to boot into bootloader mode where you can select Recovery with the Vol +/Vol – buttons to enter ClockworkMod Recovery.)
2. While in Recovery, create a Nandroid backup by navigating to Backup & Restore > Backup.
3. If you have created a backup already, select “Install zip from sdcard” option, then select “Choose zip from sdcard”.
4. Select su-2.3.6.3-efgh-signed.zip from the list. Then choose “Yes – install su-2.3.6.3-efgh-signed.zip” to install it.
5. Once installation is complete, reboot your handset.

You have now fully rooted your HTC Desire S. Your next possible step is to install a custom ROM and get rid of the stock ROM.