Convert PHP array to JSON tree

Here's code to do what you need. It does not need the items to be in parent-children order in the array, but will finish faster if they are.

Please study the comments to understand what the code is doing and why; and if you still have questions, ask them too!

// Assume your array is $data

$root = new stdClass; // this is your root item
$objectMap = array(); // this holds objects indexed by their id

// Since we need to iterate over the array, but there may be no guarantee
// that an item's parent will be always encountered before the item itself,
// we loop as many times as needed, skipping items whose parent we have not
// yet seen. Hopefully we will see it later and be able to process these
// items in the next iteration.
while (!empty($data)) {

    // Remember how many items there are when starting the loop
    $count = count($data);

    // Do the actual work!
    foreach ($data as $key => $row) {
        $parentId = $row['parent_id'];

        if ($parentId === null) {
            // We just met the root element
            $current = $root;
        }
        else if (isset($objectMap[$parentId])) {
            // We met an element with a parent that we have already seen
            $current = new stdClass;
        }
        else {
            // We met an element with an unknown parent; ignore it for now
            continue;
        }

        // Put the current element on the map so that its children will
        // be able to find it when we meet them
        $objectMap[$row['id']] = $current;

        // Add the item to its parent's children array
        $objectMap[$parentId]->children[] = $current;

        // Set the item's properties
        $current->id = $row['id'];
        $current->name = $row['name'];
        $current->data = new stdClass; // always empty
        $current->children = array();

        // We successfully processed this, remove it (see why below!)
        unset($data[$key]);
    }

    // OK, we looped over the array once. If the number of items has
    // not been reduced at all, it means that the array contains only
    // items whose parents do not exist. Instead of looping forever,
    // let's just take what we are given and stop here.
    if ($count == count($data)) {
        break;
    }

    // If there are still items in $data, we will now iterate again
    // in the hope of being able to process them in the next iteration
}

// All set! If $data is not empty now, it means there were items
// with invalid parent_ids to begin with.
$output = json_encode($root);

My take (I know an answer has been accepted, but I worked on this so I'm gonna post id =P)

// Test data
$data = array(
    array('id' => 1, 'parent_id' => null, 'name' => 'lorem ipsum'),
    array('id' => 2, 'parent_id' => 1, 'name' => 'lorem ipsum1'),
    array('id' => 3, 'parent_id' => 1, 'name' => 'lorem ipsum2'),
    array('id' => 4, 'parent_id' => 2, 'name' => 'lorem ipsum3'),
    array('id' => 5, 'parent_id' => 3, 'name' => 'lorem ipsum4'),
    array('id' => 6, 'parent_id' => null, 'name' => 'lorem ipsum5'),
);

// Randomize, because the data may not be in a top-down order
shuffle( $data );

// Parse and inspect the result
$builder = new TreeBuilder( $data );
echo '<pre>', print_r( $builder->getTree() ), '</pre>';


class TreeBuilder
{
  protected $leafIndex = array();
  protected $tree      = array();
  protected $stack;

  function __construct( $data )
  {
    $this->stack = $data;

    while( count( $this->stack ) )
    {
      $this->branchify( array_shift( $this->stack ) );
    }
  }

  protected function branchify( &$leaf )
  {
    // Root-level leaf?
    if ( null === $leaf['parent_id'] )
    {
      $this->addLeaf( $this->tree, $leaf );
    }
    // Have we found this leaf's parent yet?
    else if ( isset( $this->leafIndex[$leaf['parent_id']] ) )
    {
      $this->addLeaf( $this->leafIndex[$leaf['parent_id']]['children'], $leaf );
    } else {
      // Nope, put it back on the stack
      $this->stack[] = $leaf;
    }
  }

  protected function addLeaf( &$branch, $leaf )
  {
    // Add the leaf to the branch
    $branch[] = array(
        'id'       => $leaf['id']
      , 'name'     => $leaf['name']
      , 'data'     => new stdClass
      , 'children' => array()
    );

    // Store a reference so we can do an O(1) lookup later
    $this->leafIndex[$leaf['id']] = &$branch[count($branch)-1];
  }

  protected function addChild( $branch, $leaf )
  {
    $this->leafIndex[$leaf['id']] &= $branch['children'][] = $leaf;
  }

  public function getTree()
  {
    return $this->tree;
  }
}