I wanted something new for the summer so i cut up my old school shirt and made it into a some what bathing suit cover up. it's really short but i like it a lot, it's actually very comfy. Also, i usually wear a size small, so i used a medium shirt. I would say try and get a shirt at least one size larger then what you are, or if you want a lot of dangling fringe then get a really really big shirt.
First start by cutting off the sleeves and down the sides. keep both the front and back of the shirt together. Then start cutting little slits down both of the sides of the shirt, the amount and size of the slits don't matter. but try and only make them an inch deep.
Tie together each little set of the fringe together in a good knot. As you go along pull a little bit down on the side so that it can stretch out and not start to gather. Do this to both sides. i think that this has to be the longest step.
Then it should come put to something like this. I would suggest trying it on and see how it fits. if it needs to be tighter then untie all the knots, cut the slits deeper, and then tie all the knots again.
This was my final result. I added a tie to the top so it would stay up better after i took this picture, I made the tie out of extra cloth i had from the t-shirt. This is an extremely short dress though. Also, pardon my bra...