I do the preflight before the student arrives. First off, they get in their seat, I explain how to adjust it, then I briefly explain how the flight controls work. Then I briefly explain the flight and engine instruments. I tell them how to work the doors, windows, seatbelts, no smoking, no electronics, and go over positive exchange of flight controls (you have the flight controls, I have the flight controls, you have the flight controls). I explain the before start and engine start checklists as I execute them, and generally let the student turn the ignition switch to start.
I taxi off the ramp, once on the taxiway, I give the student the controls and let them taxi (and wonder how many times I will have to tell this person to keep their hands off the yoke).
I execute most items of the before takeoff checklist, explaining as I go, and let the student do a few things such as the magneto checks and carb heat check.
I handle the radios for the entire flight. If I feel the student did a good job taxiing, I may let them try the first takeoff. However, many people seem to be "freaked out" about taking off on their own for the first time, so if they express any discomfort, I will do the takeoff.
I've only had a few students who felt comfortable taking off and handling the entire climb on their first lesson, most people don't want to do that. Once we get up to altitude I explain the trim wheel, hand the controls over to the student if they don't already have them, and let them try some straight and level, level turns, climbs, and descents. If they have trouble with straight and level, I take the controls back. Then I trim the airplane for straight and level and take my hands off of they yoke, demonstrating the inherent stability of the airplane.
After that, it's time to head back. I let the student turn us back toward the airport and put us in the inital descent to pattern altiude. I take the controls at 1000 AGL and demonstrate the landing. I let the student taxi back to the ramp, and take the pedals back once we're on the ramp. I park the airplane and tie it down, then we go inside for a debrief.
I've done this about a dozen or so times so far, and it's different every time. I've had people who wouldn't take the controls until we got to cruising altitude and even then told me they were "tired" after 1 or 2 minutes and surrendered the airplane back to me. On the flip side, I've had students who took off on their own and did a reasonably good job of landing the airplane on their first try.
All in all, these are the most stressful flights for me as an instructor, because I have no idea who I'm flying with, what their ablities are, or what their personality is like.
I reccomend Kershner's book for these types of questions. He gives a pretty detailed breakdown of exactly what should be covered on the first couple of flights. I always glance over that book before a discovery flight.