First you need a bit of old pencil (colored is pretty) that can be any size depending on your taste. If you don't have an old bit you can chop a bit off a normal sized pencil and sharpen the edge.

Now you need to create a little hole in the pencil lead at the top. You can use a needle or pin and just keep scraping.

Now you need a little piece of wire with a hook at the end. Sorry that the picture is so small but it looks like a number 9 made of wire.

Super glue the wire into the hole you created previously.

While the glue is drying you can make the key chain part. I used a chain but you can use string, ribbon, beads, buttons or anything you can think of.

Use a link to join the key chain to the loop of wire, which by now is stuck inside the pencil.

There you have it, a pencil key chain!
If you want you can make a necklace, m a pencil charm bracelet in different colors, maybe even earrings. The possibilities are endless :)