Having a larger baby, We've found that the regular sized baby towels are just not big enough. I found a handy little tutorial here ( http://www.homemademamas.net/2010/02/hooded-bath-towels.html ) these can be made with face washers or half a hand towel for the hood. You could also exchange the bath towel for a bath sheet (for the bigger kids)
*Disclaimer. I make no promises as to the reaction of your child to all your effort. As you can see, mine was not impressed in the slightest...
start with a regular bath towel and two face washers. (or you can use a hand towel cut in half in place of the face washers) add some ribbon if you feel like being decorative.
line the face washers up back to back, pin along two adjoining edges, then sew them together (I used a quick basting stitch along the edge first, then used a short Zigzag to neaten the edges)
Turn it so the edge is inside. It should now look something like this.
if you want to add a decorative strip or ribbon, this is where you add it. Sew to the outside of the hood, with the ends finishing at the bottom (where it will be attached to the towel.)
Open the towel and hood, align the hood to the centre, Pin, then sew. (I did a short Zigzag along the edge of the hood on the inside, then again on the edge of the towel on the outside where it met the hood, to keep it neat)
Size comparison to a regular sized (AUD $35) baby hooded towel.