I've been doing so much more hand sewing and knitting this winter that the kids have become very interested. Huck asks for bits of yarn and my knitting needles all the time. Okay, most of the time it's to tie up a bad guy or use as a sword, but I could just tell he was ripe for this.
I set him up with his very own little sewing basket and showed him how to do a basic straight stitch. He likes it. If left on his own he makes rather long stitches so he runs out of thread (embroidery floss) pretty quickly. But I plan to let him draw on some fabric (you tape it to a drawing surface and just use regular pencil) and see if he can follow the lines with his stitches, which may solve that issue. He also doesn't know how to thread the needle yet but that's next up.
Obviously, due to pins and scissors and such, the activity requires some ground rules and supervision at first. We also have a dedicated spot for Huck's basket when he's not using it to keep it out of Jemima's reach.
I picked up the basket and wooden hoop at the local thrift shop for $1.50. From my own sewing stash I included a few different colors of embroidery floss, some pins, 1 tapestry needle, small balls of leftover yarn for finger-knitting, and a bottlecap pincushion (pictorial tutorial here).
The only thing purchased new was a $3 pair of small thread scissors. The whole thing cost me less than five bucks. Might be a bit more if you bought embroidery floss. I just cut out small "spools" from recycling bin cardboard (1" x 2" with a notch on each end) and wound lengths of floss from my stash around them.
We made our own Knitting Tower out of recycled materials. Works like a charm and is a great way to remind kids to hit the recycling bin for creative inspiration!