This is taken from my Kebo Twitter Feed plugin for WordPress and linkifies Tweet text (Hashtags, Mentions and URLs).

twitter_linkify.php

<?php
/*
 * Converts Tweet text urls, account names and hashtags into HTML links.
 * Accepts return data from Twitter API (v1.1)
 */
function kebo_twitter_linkify( $tweets ) {
    
    foreach ( $tweets as $tweet ) {

        $hash_length = 45; // Length of HTML added to hashtags
        $mention_length = 33; // Length of HTML added to mentions
        $markers = array();
        
        /*
         * Linkify Hashtags
         */
        if ( ! empty( $tweet->entities->hashtags ) ) {
            
            // One Hashtag at a time
            foreach ( $tweet->entities->hashtags as $hashtag ) {
                
                // Start offset from 0
                $offset = 0;
                // Calculate length of hastag - end minus start
                $length = $hashtag->indices[1] - $hashtag->indices[0];
                
                // If no markers, no need to offset
                if ( ! empty( $markers ) ) {
                    
                    foreach ( $markers as $mark ) {
                        
                        // If the start point is past a previous marker, we need to adjust for the characters added.
                        if ( $hashtag->indices[0] > $mark['point'] ) {
                            
                            // Include previous offsets.
                            $offset = ( $offset + ( $mark['length'] ) );
                            
                        }
                        
                    }
                    
                }
                
                /*
                 * Replace hashtag text with an HTML link
                 */
                $tweet->text = substr_replace( $tweet->text, '<a href="http://twitter.com/search?q=%23' . $hashtag->text . '">#' . $hashtag->text . '</a>', $hashtag->indices[0] + $offset, $length );

                // Set marker so we can take into account the characters we just added.
                $markers[] = array(
                    'point' => $hashtag->indices[0],
                    'length' => $hash_length + $length,
                );
                
                
            }
            
        }
        
        /*
         * Linkify Mentions
         */
        if ( ! empty( $tweet->entities->user_mentions ) ) {
            
            // One Mention at a time
            foreach ( $tweet->entities->user_mentions as $mention ) {
                
                // Start offset from 0
                $offset = 0;
                // Calculate length of mention - end minus start
                $length = $mention->indices[1] - $mention->indices[0];
                
                // If no markers, no need to offset
                if ( ! empty($markers) ) {
                    
                    foreach ( $markers as $mark ) {
                        
                        // If the start point is past a previous marker, we need to adjust for the characters added.
                        if ( $mention->indices[0] > $mark['point'] ) {
                            
                            // Include previous offsets.
                            $offset = ( $offset + ( $mark['length'] ) );
                            
                        }
                        
                    }
                    
                }
                
                /*
                 * Replace mention text with an HTML link
                 */
                $tweet->text = substr_replace( $tweet->text, '<a href="http://twitter.com/' . $mention->screen_name . '">@' . $mention->screen_name . '</a>', $mention->indices[0] + $offset, $length );

                // Set marker so we can take into account the characters we just added.
                $markers[] = array(
                    'point' => $mention->indices[0],
                    'length' => $mention_length + $length,
                );
                
                
            }
            
        }
        
        /*
         * Linkify text URLs
         */
        $tweet->text = make_clickable( $tweet->text );
        
        /*
         * Add target="_blank" to all links
         */
        $tweet->text = links_add_target( $tweet->text, '_blank', array( 'a' ) );
        
        /*
         * Decode HTML Chars like &#039; to '
         */
        $tweet->text = htmlspecialchars_decode( $tweet->text, ENT_QUOTES );
        
    }
    
    return $tweets;
}