(Pattern at some point...)
If you haven't seen My Neighbor Totoro, you should (and I don't mean the one with Dakota Fanning.)
I used Lion Brand Cotton Ease in lake and stone to knit the outside. I knit it in the round until the seed stitch edge (which is only on the front and back. I used a combo of machine embroidery and glue to make the totoro, and I used plastic canvas, cut to shape and sew together as the lining, sewed fabric to that then into the bag.
The acorn buttons were from Jo-Anns.
I'm going to make myself one of these, as this was for a swap, and as I do that I'm going to write up the official pattern.