iOS 4.3.5 was recently released by Apple to fix a security issue with certificate validation.Thankfully Redmondpie Team has cooked a custom PwnageTool bundle that will allow you to jailbreak iOS 4.3.5 and Preserve Baseband unlock.


Here's what you will need:

Warning:
If your baseband is 4.10.1 Do not update to iOS 4.3.5 as there is no unlock for it now. Modify PwnageTool For Custom Bundle
Step 1: extract the custom bundle we mentioned above and drag it to your desktop.

Step 2: drag the PwnageTool app to the /Applications folder but do not launch it yet. Instead, right-click it and select Show Package Contents, in order to insert the bundle. For reference, check out the screenshot below.
Step 3: you should now see a Finder window identical to the one below. Navigate over to Contents/Resources/FirmwareBundles/ and place the .bundle file you had selected earlier to this location, then close the window.
Creating Custom 4.3.5 Firmware

Step 4: start up PwnageTool in Expert mode, as shown on the screenshot below. Select the device you’re using, then click on the blue arrow on the bottom-right corner of the window to proceed.
Step 5: when requested, point PwnageTool to the iOS 4.3.5 IPSW file you downloaded earlier, as shown in the screenshot below.
Step 6: on the next screen, you’ll be given the option to further customize the software you’re about to build. Feel free to toy around with these settings, but only if you know what you’re doing. If you’re not sure what to do, just click on "Build" as shown below. PwnageTool will then build a jailbroken firmware, a process that could take a few minutes, so kick back and have a soda.
Step 7: when instructed, you need to put your phone into DFU mode. Just do as follows:

Hold down both the Power and Home buttons simultaneously for 10 seconds.
Release the Power button but keep holding the Home button for 10 more seconds.
If your screen is black, you’re in DFU mode. If an iTunes logo is displayed, you’re in Restore Mode: just try the steps above a few more times, sometimes it doesn’t go well on the first try. Nonetheless, a notification will be displayed if you’ve managed to enter this mode correctly.
Restoring Custom 4.3.5 Firmware On iPhone

Step 8: once this process is done, you’re free to exit out of PwnageTool. Now launch iTunes and restore to the firmware file you’ve just created: select your device from the iTunes sidebar, and click Restore while holding down the Alt key on your keyboard. Select the firmware file you’ve just saved (make sure it’s the one created by PwnageTool, not the default firmware) and click Open. iTunes should now begin loading the jailbroken firmware to your device, avoid interacting it at this point. If everything goes as expecting, your device should be jailbroken at this point.
Booting iPhone In Tethered Mode

Since this is a tethered jailbreak, whenever you boot up your device you’ll have to plug it into your computer and run a small utility known as tetheredboot. You’ll need to follow the following Step 11 and Step 12 whenever you start up your device!

Step 9: place tetheredboot (download link at the beginning of the article) in an accessible directory.

Step 10: change the extension of the custom IPSW file you’ve just created to .zip by renaming the file, then extract it much like a real ZIP file. Navigate to /Firmware/dfu/ and copy two files (kernelcache.release.n90 and iBSS.n90ap.RELEASE.dfu) from that directory to the folder you’ve pasted tetheredboot utility into, as shown below.
Step 11: with your device plugged in but turned off, bring up the Mac OS X Terminal (by heading to Applications/Utilities/Terminal), type in the following commend, press enter and insert your password when requested:

sudo -s

Then type in the following:

/Users/TaimurAsad/Desktop/tetheredboot/tetheredboot
/Users/TaimurAsad/Desktop/tetheredboot/iBSS.n90ap.RELEASE.dfu
/Users/TaimurAsad/Desktop/tetheredboot/kernelcache.release.n90

if the commands above don’t work, try the following:

/Users/TaimurAsad/Desktop/tetheredboot/tetheredboot –i
/Users/TaimurAsad/Desktop/tetheredboot/iBSS.n90ap.RELEASE.dfu -k
/Users/TaimurAsad/Desktop/tetheredboot/kernelcache.release.n90

Important: Make sure you replace /Users/TaimurAsad/Desktop/tetheredboot/ with the directory where you have placed the tetheredboot utility.
If you’re not comfortable typing in commands, you can simply drag the 3 files in your tetheredboot folder right into the terminal window after the original sudo -s command.

Step 12: after some code runs through the terminal, you’ll be asked to set your phone into DFU mode. Do so, as shown below:

Hold down both the Power and Home buttons simultaneously for 10 seconds.
Release the Power button but keep holding the Home button for 10 more seconds.
If your screen is black, you’re in DFU mode. If an iTunes logo is displayed, you’re in Restore Mode: just try the steps above a few more times, sometimes it doesn’t go well on the first try.

If you wait a few seconds, you should see “Exiting libpois0n” on the terminal. Your device is now in a jailbroken state until next time you power off.