(Here is a version made with different colours)
Making a baby poncho from granny squares is a piece o' cake. Directions for making a square or piecing it together might be a tad confusing, though. I made a photo tutorial for you to ease your frustration:) Thank you to a reader, Renee, for suggesting this project.
Baby Poncho Tutorial
To make a poncho you need to make 6 granny squares. Using a 5mm hook I've chosen Debbie Bliss Ecobaby cotton to make mine. I've used four different colours.
1. Chain 4 to begin a square.

2. Join with a slip stitch into first chain to create a circle.

3. Chain three(this will act as the first double crochet).

4. Double crochet into centre of circle once.

5. Chain 3, to make corner.
6. 2 double crochet into circle.

7. Chain 3, (2 double crochet into centre, chain 3) twice, join with a slip stitch into third chain of beginning.

8. Slip stitch to corner.

9. Cut thread.

10. Join next colour, pull new colour through loop.

11. Slip stitch new colour through corner. 
12. Chain 3, double crochet into corner.

13. Chain three(to make corner), 2 double crochet into corner.

14. Chain 1, (2 double crochet, chain 3, 2 double crochet, chain 1) three times, slip stitch into third chain of beginning.

15. Slip stitch to corner, cut yarn.

16. Join new colour as above. Chain 3, double crochet into corner, chain 3, 2 double crochet, chain 1, 2 double crochet into chain one space.
17. Chain 1, (2 double crochet(into corner), chain 3, 2 double crochet, chain 1, 2 double crochet into chain one space, chain 1)three times, slip stitch into third chain of beginning, cut yarn and attach next colour as above. Next Row~ Chain 3, 1 double crochet(into corner), chain 3, 2 double crochet, chain 1, (2 double crochet into chain one space, chain 1) two times, [2 double crochet(into corner), chain 3, 2 double crochet, chain 1, (2 double crochet into chain one space, chain 1) two times,]three times, join with a slip stitch to third chain of beginning.

18. Cut yarn and pull through end to finish square.

* instructions added May 13th 2011*
19. Join next colour with slip stitch into corner, chain 3, double crochet, chain 2, 2 double crochet.

20. Double crochet in top of next double crochet from row 4, double crochet in top of next stitch, *(double crochet in ch one space, 2 double crochet in top of next two double crochet)*repeat until you reach the corner, 2 double crochet in corner, chain 2, two double crochet. Repeat this pattern until you've made it back to the beginning. Break off and draw yarn through loop to finish square.
21. Phewf! You are finished your first square. Now make 5 more squares, 4 of one colour pattern and 2 of the other. Or you can make any colour combo you want since it's your poncho:)
To be continued...
The Baby Poncho Tutorial ~ Part 2 click the link to continue the photo tutorial!