Here is how I did it:
1. Cut fabric and lining into a rectangle (I cut it about 20 inches wide and 26 inches long; will depend on the size of your child).
2. Place both pieces together, right sides together.
3. Pin the fabric together.
4. Mark on both sides of the longer edge a space about 4-5 inches (I made these marks about 8-9 inches from the top).
5. Sew fabric together, leaving the marked sections open (this is for pulling the cord through).
7. Reach into one of the open sections and turn the fabric inside out.
8. Press the edges of the fabric.
9. Now make 1-3 columns about an inch thick, horizontally along the section that remains open (I
like having a few columns as an option to adjust length, so different sized kids can use it).
10. Thread your cord through one of the columns (I used a safety pin to get it through) and gather your fabric in the center of the cord .
*In order to use it as a hooded cape (like Red Riding Hood), you will need to tack the corners of the hood somewhere on the cape. It looks really cute and the hood will be easy to remove and reuse as another cape. (My daughter is 3.5 yrs old and my son is 18 months old)