What is the final word on indicating italics in a novel? Use underline or use italic font?
Use italic font.
To understand why we used to underline, you have to think about old typewriters. They had a limited number of letters and symbols available. Since italics requires a secondary font (i.e. each of the regular letters set at an angle), there just wasn't enough room. However, since underlining required the user to add just one character (the underline) under each letter he'd already typed, underlining was feasible.
Now that we've moved to computer files, it makes more sense to italicize, especially because the printer is working from your submitted file, not retyping (or otherwise recreating) your document from scratch.
The only place you should use underlines in a modern manuscript is to indicate where things should be underlined in a final typeset version.
And for the record, you should also submit all manuscripts in Times New Roman, not Courier.
There is a But here. You knew there was, right?
Word is there are a few people out there in the publishing world that are still old-school. They like things in Courier, with underlines. I haven't met any, but rumor has it there are still a few around.
So how will you know? By carefully reading their submission guidelines. If they tell you to use Courier and underlines, use Courier and underlines. If they don't specify, use Times New Roman and italics!
One last tip for your manuscript submission: Create a running header or footer that contains not just your name and the book or story title but also your contact information (an email address or phone number is plenty) in case pages get separated. Because if the agent or editor doesn't know who you are or how to reach you, it doesn't matter how you formatted your manuscript.
Carolyn Kaufman, PsyD writes fantasy, scifi, and nonfiction. She loves helping writers "get their psych right" in their stories, and she's the author of THE WRITER'S GUIDE TO PSYCHOLOGY: How to Write Accurately About Psychological Disorders, Clinical Treatment, and Human Behavior is now available. Learn more about the book at the WGTP website or ask your own psychology and fiction question here.