You can use almost any graphics or creative printing program to design iron on transfer artwork. Ideally the program will have an option to flip or reverse the image for transfer printing or you can manually flip the image in the document. However, there are some t-shirt design software programs specifically for creating personalized t-shirt designs and similar iron on transfer craft projects. These programs are for the Windows platform.

Photo courtesy of PriceGrabberThousands of ready-made designs or create your own with over 28,000 clip art images. This
Nova Development package comes with a t-shirt, transfer paper, and bonus photo-editing and creativity software. The T-Shirt Factory also includes a Perfectshirt guarantee. An expansion pack is available with more paper and more clip art and project ideas.

Photo courtesy of PriceGrabberGet ready-made t-shirt designs, thousands of clip art images, photos, fonts, easy to use software, a white t-shirt, a blank mousepad, iron-on transfer paper, and an Oops! proof guarantee.
Hanes2UThis lite version of their T-ShirtMaker product is available for a free download but you have to join the Hanes2u community (it's free). If your needs are basic, this may be all you need.

Create Your Own T-Shirts from Focus MultimediaThis Focus Multimedia (a UK-based publisher) software is also available from
Serif Extra!. Windows Vista compatible, it's an inexpensive program that offers 200+ templates and 1,000 clip art images. You can also import your own photos to put on a t-shirt. There are some basic photo editing tools (red eye and scratch removal) and a step-by-step wizard to guide you through your t-shirt design. It creates mirror images for printing on transfer paper.
I'm including this software for those who want more options to explore although I know little about it other than the description provided (and it's really, really cheap): "~Over 100 T-Shirt and underwear designs in 25 categories that cover every occasion! ~An option to import your own photos, clipart, and images. ~50 different fonts. ~Toolkit of 850 clipart designs and 100 photos. ~An easy-to-use interface. ~Free 24/7 tech support." The site has a separate site for Mac so I'm going to assume this title is Windows.
This is actually an online t-shirt design service, not typical t-shirt design software. It walks you through the t-shirt design process online -- using their artwork or upload your own. Once you like the way the shirt looks online, place an order. You can design other items too like hats and bags.