Familiarize yourself with the appearance of different types of caterpillars. Caterpillars look different based on the species of butterfly from which they come or are to be converted. For example, they may be brightly colored, hairy, mottled, thin or fat, etc.
You can reduce the possibilities for the type of caterpillar you have found taking into consideration the host plant. For example, if you find a caterpillar on a cottontail leaf, it is likely to be a monarch butterfly caterpillar.
The next step in determining what type of caterpillar you have encountered is to consider its appearance. For example, monarch butterfly caterpillars have green and yellow stripes, white and black, and appear slightly thick and plump.
It's a good idea to check a book or website if you're unsure about the type of caterpillar you've encountered. Some websites even help you determine the type of caterpillar using checkboxes that you have to check.