These two words are very often confused. A typical mistake is when somebody uses its instead of its, although the opposite often happens, too. Actually, its not very difficult to remember which is correct in a given situation:

you can only use its if it is the short form of it is or it has (been). Here are some examples:

When you go abroad, its a good idea to take a guidebook with you.
( it is a good idea)

Dont worry, its been like this for a long time.
( it has been like this)

Are you telling me that its my fault?
( it is my fault?)

The box was hidden in an attic during the war and its been there until today.
( it has been there)

Its is a possessive word, just like my or your; it means that something owns something or something belongs to it. Examples:

The car was badly damaged but its driver escaped unhurt.
The dog went back to its house.
The house and its garden are a popular tourist attraction.