Currently this is possible only through the API using the Rebuild event and then passing it the image_id of any valid image, including base OS images, and your snapshots.

You can also do this through the new control panel which is available at:
https://beta.digitalocean.com/droplets

We will be rolling out this new control panel hopefully on Friday->Monday and then this feature will be easier to access.

where's the new CP?

@kbaylog: The "new control panel" was released a few months ago and is the control panel you're accessing now through https://www.digitalocean.com/login :]

Can someone describe how this is done via the Control Panel? Do I need to first delete my current droplet, and then create a new one? How does the billing on this work, will I get billed another $5 in doing this?

@bradleybossard: Rebuilding your droplet does not cost you anything. You can switch the OS (your data will be wiped) any time you like from the Destroy -> Rebuild section.

So, how to change OS but without deleting my current droplet?

@Marga: See my comment right above yours.