Mike has posted a detailed tutorial on how to modify an ordinary plugin soldering iron to work with a digital temperature controller:
A thermocouple was mounted internally inside the soldering iron so it is out of the way. The idea was to find the “sweet spot” at the back of the heating unit inside the soldering iron where the temperature would match up with the temperature of the soldering iron tip.
The unit was tested on a range of temperatures at 200°C, 250°C, 300°C and 350°C to see if the tip temperature would coincide with the internal temperature as the soldering iron heated up. The results were encouraging. The tip temperature varied by only a few degrees in most cases and even coincided with the internal temperature a few times.
More details at PCB Smoke site. Check out the video after the break.