I was babysitting two of my granddaughters, so I let them pick out their favorite fabrics from my stash, and I sewed them each a little bag to carry their toys in. One chose fabric with a castle and princesses, the other chose fabric with cupcakes and desserts on it.
I think the key to sewing with grandchildren is to let them pick the fabric, and then sew the item very quickly while they are watching. I am trying to create some interest in sewing so that later, when they are older, they might enjoy sewing with me. I can only hope!
I love sewing with my grandchildren!