How to convert a normal Git repository to a bare one?

In short: replace the contents of repo with the contents of repo/.git, then tell the repository that it is now a bare repository.

To do this, execute the following commands:

cd repo
mv .git ../repo.git # renaming just for clarity
cd ..
rm -fr repo
cd repo.git
git config --bool core.bare true

Note that this is different from doing a git clone --bare to a new location (see below).