How To Jailbreak iPhone 4 Running on iOS 5.0.1 Using Redsn0w 0.9.9b8:
STEP 2: Backup your iPhone, iPad or iPod touch and restore it using the iOS 5.0.1 IPSW file downloaded using iTunes.
STEP 3: Download latest version of Redsn0w 0.9.9b8 from HERE.
STEP 4: Now, open Redsn0w and simply click on “Extras” then “Select IPSW” and browse for the iOS 5.0 IPSW file (download here) As shown in the picture below:
STEP 6: Allow it to jailbreak, after that your device will automatically rebooted…
Now you have successfully jailbroken your iPhone running on iOS 5.0.1 after that you should find Cydia on your iPhone, you can also download SemiTethered jailbreak tweak on your iPhone in order to reboot your device without need to a computer to connect to. You’ll lose some functions like opening mail and almost all jailbreak tweaks. You can read more here.