Use a straight router bit. A straight bit will make the rectangular cut required for a dado joint.
Clamp a 2-by-4 to your wood as a guide. Decide where you want your dado joint to be located on your wood. Make a line on the wood. Measure 1 1/2 inches from that line and draw another line. Place the 2-by-4 even with the second line. This will allow the space needed for the router and should line your joint up perfectly with your first line.
Clamp another 2x4 to the wood where you want the dado joint to stop. This will keep you from cutting all the way through the width of the wood. A stopped dado should terminate roughly an inch from the front edge of the wood.
Slowly move the router through the cut. Use several passes with the router to make the cut, increasing the depth of the cut each time. For hardwood, dado cuts should be only 1/8 to 3/16 of an inch. For medium density fiberboard or plywood, cuts should be 1/4 inch.
Square up the curved end of the dado joint with a chisel. The end of the cut will be somewhat curved. Gently scrape away the unwanted wood until you have a perfectly squared joint that matches the rest of the joint.