I am a little bit nervous about trying to DM {...} Am I too new to try this? Should I wait a few more months?
This is perfectly fine. Everyone has to start somewhere. Try not to be nervous. Assuming your players are understanding, they likely won't expect much out of your campaign (which is a good thing when your are a new DM).
As a bit of information about "what it takes" to run a game, when I first started DMing with AD&D 2nd Edition circa 1992, I literally had never played any type of Pen and Paper RPG... and neither had the people I started playing with. So you're never "too new". :-)
With that in mind, here are some tips to get you started...
Read The Books
I think I would like to run a game as close to RAW as I can get.
This is good. Any system you run, you will want to know as much of the rules as possible even if you don't use them.
For D&D your reading list should be:
- the basic Player's Handbook
- the basic Dungeon Master's Guide
Read these cover to cover at least once before DMing a game. Likewise, you should really grab a copy of a Monster Manual and peruse that as well.
I do not own any core books, I mostly just get my info online.
Since 3.5 is part of the D20 system, you should have no issues being able to look through most of this online. To get you started, there is the SRD20, which includes updates for 3.0 and 3.5.
Note that there is also the Pathfinder SRD by Paizo Publishing. Don't be confused - Pathfinder isn't official 3.5. And while close in many ways, it is a different game system.
To be clear, the rules you should study are the SRD20 rules above. Unless you are running a Pathfinder game, the Pathfinder SRD is not what you should be reading -- but it may be suitable for a change of pace later on.
Besides dice & game mechanics, the parts you should really focus on studying prior to running your first game are simple combat & intiative, actions in combat, injury and death, general magic, ability checks and saving throws. These are the rules that are used most often and are the most important rules for you as a new DM. Almost all of the other stuff can be fudged.
As a final comment on reading, having as good a knowledge of these books as possible will aid you immeasurably... but don't sweat memorizing them. Your knowledge doesn't need to be encyclopedic and it's ok not to know some (or most) of the rules. But when things "come up" in your game (and they will), you will be much better prepared if you are well read.
Is the [Dungeon Master's] Guide mandatory for running games?
Erm, maybe?
The DMG isn't "mandatory" for running a game in the sense you can make up rules, but you will be sorely lacking if you haven't read it at least once and don't have a reference copy (even if it's a few select print outs or a laptop open to the SRD20).
Don't forget that often understanding DMs will likely let you borrow their DMG or other books as long as it doesn't interfere too badly with their own games/adventure creation.
What is in [the Dungeon Master's Guide]?
In D&D, the DMG is generally the "other half" of the rules assuming the Player's Handbook can be considered the first half (or the third part of a trifecta that makes up the core rule books if your count the Monster Manual).
Essentially it covers all the stuff the Player's Handbook doesn't -- what the players don't need to know to play but what you as DM (roughly) need to know rule-wise to run a game world.
That being said, the SRD20 link above covers everything you need to know as DM to run a game, and for these purposes, the DMG can be considered mostly "flavor".
How To Be A "Good" DM - Cliffnotes Version
While there are many nuances to being a good DM, arguably the most important things when learning how to DM are:
How to tell an interesting story with the help of your players (collaborative storytelling)
How to keep your players alive and NOT to kill them
How to keep your players happy (give, give, give!) without throwing your game out of whack
How help your players have fun (to the point they are saying "Wasn't it cool when...?")
To this end, there are a number of guidelines that generally apply:
Listen
Listen to your players and don't simply dismiss them. Remember, it isn't just your game -- it's yours and the players. You need to strike a balance that makes you and your players happy. If your players are subtly or overtly complaining on a regular basis, you are likely failing this test.
Ask some form of "What do you do?" as much as reasonably possible. Getting player's to help tell the story is an integral part of creating a fun game.
Say yes to and incorporate player input about the game. Whether they want to try a cool non-standard action, have thoughts on their own characters or the game world or are giving hints about how they think the plot might unfold or what they may want for their character, say yes -- unless (and only if) it would break the game too badly.
Player input often makes a DMs job of creating a world (and a fun game) much simpler. Don't waste it. Talk to your players regularly before and after sessions. Don't ignore unresolved play issues.
Decide How Your Game Operates For Maximum Fun
Don't be a rules lawyer and don't let your players be ones either.
Don't be slavish to the Rules-As-Written if they are no fun. Don't let player's force you into doing things solely for their advantage because of how they interpret rules. Do listen regarding player interpretations of the rules and consider carefully what they are saying (especially if they are pointing out something valid and correct... or if it may add fun to the game).
Be firm and consistent about how your game works. Fluid games are fine, but games with fairly firm guidelines on how things are resolved in-game (by the book or house rules) are easier for a DM to manage (especially a novice one). And remember that you should know the rules (wherever they come from) before you break them.
Use a DMs screen to hide dice rolls and other DM-only information. You lose a lot of flexibility as a DM to control your game world by rolling in the open. If players don't trust you to role behind a screen, there are bigger issues you need to deal with.
Likewise, don't show and tell monster stats. Here is the reason why I suggest this approach.
Get Encounters "Right"
Easier is better. If your players are coming close to (or are actually) dying even once a game, you are likely making things too difficult for them. Players will complain about things being too easy, but will hold grudges and leave a game that's too hard. When in doubt, dial it down.
Start off slow with treasure (gold & valuables), magical items, and experience. There is an art to giving these out and one of the easiest ways to create havoc in your game is to give out too much too soon.
Try not to leave any player on the sidelines for too long. Try to make sure everyone benefits from an encounter (both with fun and with useful items).
Your job is not to punish players. Don't take things they do or say personally. You don't need to "train" your players or get revenge on them. If you aren't having a good time DMing, you can always stop running adventures or find another group.
Use What You Know
Think of all the times your were bored, upset, confused, felt left out or otherwise weren't having fun. Try avoid these situations when running your game.
Think of all the times you have really had fun playing as a character. Then as a DM, try to create similar scenarios in your own adventures. Your players will likely have as much fun as you did.
Watch players. They will tell you minute by minute about how much fun they are having in-game by things like tone of voice and body language. If things are dragging, trying to figure out a way to pick things up and move the story along (create interest).
Advanced DM Tips
Learn to properly use the Magician's Force and dice fudging.
Despite the very first two items (listening and asking), and the fact that RPGs are collaborative things, there will be times when you need to have things happen in your game.
In addition, at times, you will need to help players without appearing to do so (such as when they make terrible mistakes that, if you didn't manipulate the outcome, would be no fun for anybody). Don't do it often, and certainly as a novice start small, but try to practice these skills when you can.
You will fail. No DM has ever run a game where everything went perfectly. Your job as DM is to keep the players having fun, but you won't always succeed. Just keep at it, and, as a novice, don't be too hard on yourself -- let your players decide how much fun they are having.
Running Your First Adventure
Since your a novice, even though you may be playing with people who are more experienced than you, it's probably a good idea to keep it simple. Don't get into any grand adventures just yet.
Like others have already stated, start small. 1st - 3rd level characters are likely best. At these levels, there are far fewer powers and abilities to deal with, and monsters have fewer abilities as well.
As far as an adventure is concerned, start with a simple one you can play over 1-5 sessions without getting too much into the idea of a grand campaign. The simpler, the better. You can always build into to a larger story arc later.
Regarding the subject of creating an adventure or DMing a pre-made one, as a new DM I would choose the latter (pre-made). Anything that's even of moderate quality will give you a much better idea and potential blueprint of how to design your own adventures well.
It will also give you a very early handle on what do when your players inevitably stray from the things you have planned for them and how to come up with things you have no plan for at all.
If you insist on making your own adventure(s), you will likely need to learn about (or at least consider) the following things:
Basic plotting (e.g. 1. Party gets into town 2. Party hears about local bandits 3. Party defeat bandits besieging town but 4. Find a clue that it was the mayor who hired the bandits in the first place... 5. ??? 6. Profit.)
Planning major and minor NPCs (stats, general personality, what they do in a limited number of scenarios -- i.e does the mayor spill the beans if confronted, what happens if the party simply attacks him?, etc.)
Location design & mapping (elementary medieval services as well as fantasy tropes such as magic shops plus multiple special locations -- mayor's office with secret door, bandit cave, etc.).
Real estate planning. Believable (and fun) settings include a variety of man-made and natural locations. There is nothing wrong with themed quests, but exploring a bog-standard dungeon every single game (even an upgraded one with shiny new monsters and even more devious traps) will likely get boring for everyone rather quickly.
Designing in-game materials (e.g. bandit treasure map handout for the players found in the bandit cave.)
Handing out treasure and experience (per encounter and per adventure)
Creating world flavor (e.g. do the the bandits have a theme song? ...dunna-dunna-dunna-dunna, dunna-dunna-dunna-dunna, baaandits!)
Creating notes for yourself (and then learning about how to properly ignore them)
Managing your time (how many hours a week do you really to want to devote to this?)
Roleplaying everyone except your cleric
Thankfully, these are all much easier at lower levels and on smaller scales.
Four things that are absolutely indispensable when creating adventures are monsters (creatures and NPCs), monsters with treasure, treasure tables and magic items. All your other DM tools (such as town maps, NPC resources, etc.) will start small and likely grow larger later as you design and run more adventures.
Building and Running Encounters
Building and running encounters shouldn't be too difficult if you keep the following in mind:
Make combat encounters easier, not tougher. In game, if a combat encounter proves too trivial, it's much more believable (and simpler) to have reinforcements or the like arrive than to find a cheesy way to kludge your way out of an obviously overwhelming battle.
Combat encounters should be snappy in most cases. The only time you should have a two-hour combat scenario is when your players are determining the fate of the world.
Good encounters have tactics. Ideally, creatures and players should be able to use the surrounding environment to interesting effect.
Keep a close eye on treasure. There is almost no quicker way to create game imbalance than to give players too much money (gold and valuables) or too much magic.
Traps and obstacles (man-made or natural), riddles and puzzles are also encounters. Not every interaction the party has has to be between themselves and NPCs/monsters. Let the party exercise their noggins a bit and interact among themselves.
Dilemmas are encounters. Creating situations where the party needs to talk to each other due to different methods of approaching a problem is often a great way to mix things up.
Non-combat encounters are encounters too. Whether it is talking to an NPC, or witnessing and investigating a strange event, not every encounter has to involve mortal peril to be fun.
Encounters are not filler or time wasters. Make encounters count. Ideally, they are set pieces that A) Give the party something(s) they need (experience, treasure or information) B) Move the story forward in an interesting manner or C) Allow the player to have an experience for the sake of fun.
Lastly, Get Help From The Pros
I am planning on asking my current DM to play, so he can give guidance and support if necessary.
This is an excellent idea.
Make sure to listen to their opinion if it sounds reasonable to you, or you are otherwise really in the dark.
Don't be afraid to pull them aside and explain what you are trying to do, especially if things go too wrong in-game.
Don't be too afraid of spoiling at least some of the plot for them if they need to know.
All in all, learning shortcuts from a good DM at the outset will save you lots of trouble down the road.
