This tutorial explains how to do a 5 strand braid and how to make it into a headband. I've seen these on newborns, kids and even adults. They are pretty versatile. The best thing about this project is that it is free. All you need is an old t-shirt to cut up and a hot glue gun.
2) Cut 5 strips 1/3" to 2" wide depending on how thick you wan the headband to be. The length should be close to double the length of the head size. My six-month-old measures 17" and my two-year-old is 18" around. I would suggest a couple inches smaller for a newborn.
3) Lay all the strips flat on top of each other and glue or sew them there. I used a hot glue gun.
4) Braid it. This is the hardest step. You might want to make the below picture bigger to understand how to do the braid.
6) Glue the edges in on itslef.
7) Glue the end of the braid and cut off the strands.
8) Glue or sew the two ends of the braid together.
9) Glue or sew one end of the fabric to the back of the headband.
10) Glue or sew the other end onto the back. Make sure not to glue the front so there is a place to put a clip. And you are done.