Steps
1. Just laugh. Try to remember that most jokes are good-natured attempts at being funny. Sometimes, we take the cheapest route to funny, and usually that takes the form of taking a shot at someone. If the shot's aimed at you, try to remember that person is just trying to be funny - it's probably about him more than about you.
2. Control your temper. It's a bad idea to respond to a joke with anger. Calm yourself and tell yourself over and over that you do not need to be angry.
3. Ignore it. If you are offended by the joke, ignore it. Don't laugh at it. If the joker says, "Oh (your name), you can't take a joke!" just ignore it. You can actually end up having a bit of a laugh on him or her just by looking confused and saying something like, "Oh, was that a joke? Huh." Showing the others that you didn't get the humor there can give you a little leg up on the joker without making you look like a jerk.
4. Try to remember, most of the stuff they say isn't to hurt you. Jokes are about just trying to have fun. Instead of getting mad about it, you can even laugh along and join in, and even add your own joke about that person, or even continue the joke on yourself (you look like an excellent sport, and as a bonus, others think you are very confident when you do so). But only do it for fun, not as a form of revenge on the instigator.
5. Express your feelings calmly. Sometimes, you feel that enough is enough, or you just aren't in the mood to be the butt of a joke. If you feel that you just can't take anymore, or you find yourself boiling up inside,then tell the person how you feel, and chances are she/he will understand.
6. Consider the source. Some people make inane jokes simply because they like to hear themselves talk. Some people have the wrong idea that all insults are funny, and so they insult you, and the insult may or may not even be true. Saying a joke that obviously isn't really true is just a lie - example: "You're like a dumb blond." Know that you are not whatever negative things said; if you know you aren't a dumb blond, whatever is said is meaningless.
7. Smile and play along (sometimes). There are a few scenarios where this response might be appropriate, such as at school when those making the jokes don't know you well, or don't realize they're annoying you. At times, if you can show yourself to be a gracious good sport, you can win respect from those making the comments, and make new friends out of the deal. Another scenario where this is a good response is when you actually do something funny to prompt the joke, such as spilling water on yourself. Everyone will laugh and some doofus will turn around and say, "Oh, check it out - taking a swim!" or some other nonsense, as if you weren't already embarrassed and uncomfortable enough. But instead of getting mad, realize that you will still be wet whether or not you can just relax and get over it. Laugh, point at the wet spot and say, "D'oh! And I left my beach towel at home." The others will laugh along, and you'll have had the last laugh. Bonus points for turning to the prettiest girl (or handsomest guy) in the room with a little eyebrow wiggle and suggestive smile, and saying, "Can I borrow yours?"
8. Be easygoing. Going with the flow of things is often the best way to deal with idiots. There are a lot of (especially young) people who haven't really understood the finer points of real humor. They find "random" things and insults funny, and so say "random" things and insult people without realizing that a random response is only funny in those circumstances where a remark is made that is totally unexpected, or that an insult is only funny if it isn't so pointed that it hurts someone. The best way to handle these people is to laugh along a little bit, and then find ways to adjust their attempts at humor (by making your own, better jokes).
9. Don't be a doormat. There's a difference between being a nice, easygoing person who can take a joke, and being a doormat. If someone is always using you for a punching bag, it gets old. You will need to speak up for yourself. If this is necessary, try taking the person aside and saying, "Hey man, I've been a good sport for a while, but it's getting old. The things you're saying are hurting me. Please, stop. Don't choose someone else to pick on, just stop." If s/he gets defensive and/or continues to pick on you, don't bother trying to keep it between the two of you any longer. Stand right up in front of everyone and say, "You know, when I talked to you about this privately, I thought I made it clear that I am tired of you picking on me. I told you it hurts my feelings, and now it's just making me mad. Please stop it." It's a virtual guarantee that s/he'll be mortified that you called him or her out in front of everyone. Either s/he'll mumble an apology and leave you alone, or pick on you again. This time, you won't have to do anything— everyone else will jump to your defense, because you'll have made your discomfort known. If they don't, consider finding better friends.
Tips
- Read up on jokes - if it's an actual joke (i. e., a specific blond joke) directed at you it always helps to have heard the joke a billion times before, and possibly be able to say the punchline before someone else does. That will either amuse the person, or show him or her that joking about you is pointless.
- If all else fails, try saying, "I got the bullseye tonight - all right. Go ahead, do your worst." Let this person make his or her jokes. Then say, "Is that it? Is that all you got?" Hopefully, this person gets the point that you've had enough. If the jabs continue, walk away with a smile, and a shake of your head that tells everyone watching that some people just don't know when to quit. You will end up looking better out of it than the other guy.
- Always try to blow it off at first. If it continues, you can talk to the perpetrator.
- A smile and a mock expression of affront are a great defense.
Be able to tell the difference between a joke and bullying. Sometimes, very offensive jokes or slurs are enough, and should be dealt with in a positive manner. Do not let them get the best of you, if telling them about it leads to more "joking", ignore them and get some help.
- Be aware that sometimes it's best to just walk away from certain situations. Standing up for yourself, unfortunately, may make you an even bigger target if there's a serious bully involved.
(Source)
Further Reading:
5 Things everyone gets wrong about being offended
How to stop taking jokes seriously