We found a great tutorial on how to make this lovely hooded towel over at Skip To My Lou. You will need a bath towel, half of a hand towel, ribbon or ric-rac for trim, needle and thread.
Start by cutting your hand towel in half. Fold over the finished edge of the one-half of your hand towel, leaving about a 10 1/2 finished length and stitch. Sew on your ribbon or ric-rac for decoration. Fold the towel in half, right sides together and stich across the bottom edge. Turn it right side out and you have the hood.
For the rest of instructions, and step-by-step photos go here.
Andy & Andrew's Vintage Modern
Before & After: MacBook Dye Project
Good Food to Share 
The Big Book of Small, Cool Spaces 
Apartment Therapy Presents 
The Eight-Step Home Cure 
Deep Mountain Maple...
How To Cook a Steak: 15 Recipes for a Weeknight Valentine's Meal
How To Cook a Steak in the Oven
Comments (2)
as much as i'd like to know how to sew, i can barely hem a skirt so no homemade hooded towels for me but the link to this blog will score you some wonderful ideas for kids parties: breakfast with santa, halloween, etc. and more... this lady is pretty creative and thoughtful. i've just bookmarked her blog.
My mom makes hood towels for all the grandkids. Another variation is to sew the finished edge of the handtowel to the bath towel and fringe the unfinished edge. It makes a cute fringed hood.
Sometime she also sews decorative patches on the hood.