Nothing feels better than terry cloth after a swim, and a towel poncho is everything that a towel is not: It will not require one hand to hold it when its wearer is eating ice cream, and it will not unceremoniously unwrap.
Source: Martha Stewart Kids, Volume 1 2001
Bath towels look chic on big kids, and hand towels are winsome on the not so big. For toddlers, use buttons that are 1 1/3 inches or larger (long strings are a choking hazard for kids under 3).
Fold towel in half so ends meet; cut a half-ellipse (for neck) in center of fold and a 3-inch-wide ellipse to the right of it; open towel.
For kids 4 and up, make tie closure: Finish edges of large ellipse with double-fold bias tape, then finish small one, leaving two 15-inch tails. For kids under 3, make a button closure, using two buttons no smaller than 1 1/3 inches in diameter. Start tape at center point and cover smaller ellipse, then larger, leaving 3-inch tail. Loop tail and stitch down; place buttons on opposite sides of fabric so holes align; stitch together.
Cut pocket from a washcloth; finish sides and bottom with bias tape; fold top under and hem. Sew onto poncho.