This is currently a little awkward and hidden away but you can add the following to the <content /> section of umbracoSettings.config to make it work:

<imaging>
  <!-- what file extension that should cause umbraco to create thumbnails -->
  <imageFileTypes>jpeg,jpg,gif,bmp,png,tiff,tif</imageFileTypes>
  <!-- what attributes that are allowed in the editor on an img tag -->
  <allowedAttributes>src,alt,border,class,style,align,id,name,onclick,usemap</allowedAttributes>
  <!-- automatically updates dimension, filesize and extension attributes on upload -->
  <autoFillImageProperties>
    <uploadField alias="umbracoFile">
      <widthFieldAlias>umbracoWidth</widthFieldAlias>
      <heightFieldAlias>umbracoHeight</heightFieldAlias> 
      <lengthFieldAlias>umbracoBytes</lengthFieldAlias>
      <extensionFieldAlias>umbracoExtension</extensionFieldAlias>
    </uploadField>
  </autoFillImageProperties>

</imaging>

We're working on making this a better but for now that should work. Note that in 7.4.0 it only works on thumbnail overview, not on the list overview:

We'll have that fixed soon : https://github.com/umbraco/Umbraco-CMS/pull/1133/

This just made me very confused! Thanks Brian for asking the question and Sebastiaan for posting the answer!

Steve

In my case, I just upgraded to v7.4.1 and it fixed things without me having to edit the config files.

Hmmm.. I'm on 7.4.1. The fix has made it work in the Media section but not via the Content - clicking on Upload on a media picker property. Does that work for you?

@Brian It's not yet fixed in the mediapicker.. will be for 7.4.2 :)

@Steve @Sebastiaan:

It's just working on drag-and-drop in 7.4.1 for me, not in the media picker. Glad to hear the media picker will be fixed in 7.4.2 since some users have asked about that.

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