We got a new yarn at the shop a couple of weeks ago: a wonderful dk-weight organic cotton in the Freedom line of yarns - it's called Sincere.
I bought 4 balls of it and made this little sundress/tunic/ top for Eilynna. She's almost 18 months old, and it's a little big just now as a dress, but it should fit her through all of the stages listed above.
The yarn was a real pleasure to knit with, and the (free!) pattern will be available on the Needleworks Inc. website soon.
Two of the shop's "regulars" are already knitting their own little dresses from the pattern to test it!! The pattern is written for one size, with a 23" finished chest measurement, which should fit a 2-3 year-old -- depending on the 2-3 year-old. It took one ball each of the four colors, with just a smidge left of the purple; there were larger amounts remaining of the other three colors. I cast on Sunday morning and had a finished dress by Monday evening.