Photoshop CS5.1 text not wrapping

I am using photoshop cs5.1 ( 12.1 x64 ) and have a multi-layered psd I am working with.  I am trying to add a simple text block and for the life of me the text won't wrap inside my textbox?  I have tried this two different ways.  I have selected the text tool, and then clicked and dragged on the workspace to draw out my textbox.  Doing that won't allow me to insert my text?  The other way was to simply create the layer, then click the text tool and then go to the workspace and begin to type.  When I do this the text won't wrap even though I thought I selected that.  Also, when I hit enter (return), the text for the next line goes to the very bottom of the text area where I can't even see it? 
What am I doing wrong?
Thanks,
Mike

I have attached a pic.  Using method #1 dragging the text tool cusror to create my text box I am able to add text now.  I was mistaken when I created the box and then clicked my mouse again.  This time I simply created the text box and then typed (the cursor was top center justified in the box.  BUT, still, when I type, the text won't wrap and if I hit enter, you are not taken to the next line. 
I think what is happening is the text is beginning on the top of the box and when I hit enter for a new line it goes to the bottom of the box?
So, here is my text box and I was able to add that text you see but you don't see the other text that continues "somewhere"
Thanks for any help you can provide.
Mike

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