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So I'm currently finishing up my master's thesis and my supervisor seems to be happy with my work. The subject of PhD came up a couple of times during meetings and while I did say that I think it would be nice to do a PhD, I also said that I'm still thinking about it and considering other career options (not necessarily in academia). Then the last meeting she suddenly announced that the PhD registrations are now open and that I'm able to register. This caught me off-guard so for the next meeting I want to talk about that. In the meantime, I made up my mind and decided not to do a PhD after all, at least not for a year as I'm having another project running outside of academia.

How do I tell this to my supervisor? I'm afraid that she will be disappointed and that the remaining months of my master's thesis won't be as enjoyable. I have no reason to think this as she has always been friendly and praising my work. But you never know if she just was nice to get me to do a PhD. Probably overthinking this last part though.

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    "But you never know if she just was nice to get me to do a PhD." This seems highly unlikely. People can be nice with no ulterior motive! – astronat May 18 '20 at 10:14
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"I have another project running outside academia and would rather try my luck in the private sector at that stage in my life. I have thought about this carefully and I will not be considering a PhD right now, but I might consider it in the future. Thank you very much for the opportunity and your support, it is deeply appreciated and I would be happy to keep in touch".

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Let me note that you can apply to this program (and others) without making an early commitment. You can use the intervening time to explore the outside project. It would be an advantage to you to have several options in a few months.

You can then thank her for her advice, say you will apply, but that you also need to explore other options both in and outside academia. Ethical people would understand that.

Make a final decision when you must, but keep all options open, and even seek new ones, in the short term.

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Without knowing their personality it can be difficult to say for sure. My experience is that being honest early (unless you have reason to already believe they are a particularly manipulative person or similar) is best. You can just say something like, "Thanks for suggesting signing up for a PhD and supporting my work thus far. I have weighed up some options and decided my next step will be to spend a year focusing on a non-academic project I have running, and can't do concurrently." If you think you would like to work with them on a PhD after that you can say so. If you are not sure, be honest with that too. The hard truth is that students aren't that hard to find - good students take time to find though. While she might be disappointed you aren't continuing, she would be more disappointed by being 'led on' and not having time to find a good match for their project and funding available.

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I do not think that saying registrations are open means she wants you as a Ph.D. student. I would not think in this way unless my supervisor has said that explicitly. This can be just a gentle reminder.

Your supervisor may be disappointed but would not consider this personally because this is your life and your own career plan.

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