Convert the art from Bitmap mode to Grayscale made. It will still have only black and white pixels, but now you can use the Magic Wand tool and you can also have layers with transparency. We Needs both!

Now, let's get ride of all the white pixels in the line art, so that we have only black pixels and transparency. This is similar to making a film positive of the line art (line art on clear acetate).

Here's how it's done:
1. Convert from Bitmap mode to Grayscale.
2. Double click the Magic Wand tool to select it and to open it's Options Palette.
3. Set the Magic Wand Tolerance to "0" and make sure none of the boxes are checked.
4. Click with the Magic Wand on a white area to select all of the white pixels (with versions older than Photoshop 5.5, you may need to choose Select/Similar from the main menu, after selecting the white pixels to get every white pixel).
5. Double click the "Background" layer and name it something like "LineArt" (changing the name of the "Background" turns it into a layer which can have transparency).
6. Press the Delete key to remove all white pixels.
7. Press Ctrl(Command)-D to deselect the selection.
8. Convert from Grayscale mode to RGB mode so you can start adding color.