I made these hooded towels for my nieces and nephews that were outgrowing their hooded baby towels. They are each trimmed with bias binding made with fabric from Moda's Happy collection.
I used this tutorial
from Obsessively Stitching but then added binding all the way around. There's a great post
over at Tipnut that gives a list for a bunch of different hooded towel tutorials if you want other ideas on ways to construct and embellish.