We used the Knitty directions for dying yarn with Kool-Aid, which is wonderfully easy and creates bright colors perfect for kids (and it's relatively cheap!)
It cracked me up, because the girls were very careful to pick their favorite colors and apply them just so.
"Oh no, I got a bit too much green on the green part!"
The boys, on the other hand, were not as particular.
Not at all.
It was a bit like being in the middle of a water fight involving flying splashes of psychedelic colors.
Once the yarn was dyed, I zapped it in the microwave for 2 minutes at a time until the colors were set.
Then we set the yarn on the porch to dry.
It was a very pretty sight, I must say!