First and foremost, wash the blouse and any other fabric you plan on using. I like to iron all of my fabric, too. I started by using an existing dress that fit her as a guide. I folded the blouse in half and cut around the dress.
That left me with two pieces, a front and a back, that looks something like this. I also stitched down the front of the blouse where it buttoned since I didn't plan on using the existing buttons and because I wanted it to be one solid piece.
Also remember when cutting that the top of the dress is going to be folded down later to make the casing for the tie or ties so leave plenty of room for that.
Now, the blouse I had was a little longer in the front than it was in the back. That meant I wasn't going to be able to use the existing hemline of the blouse for the dress hemline. I'd have to cut it off to make both front and back even. But that meant my dress would be too short. So I added an extra band of fabric to the bottom. I used a pattern piece from another dress pattern I had for this since it can be tricky to cut it just right. If you have to do the same, just make sure that you cut it at a slight curve. Here is a picture of my pattern piece so you can see what I mean.
After you've cut your band of fabric out, sew each piece seperately onto the bottom of both dress pieces (I prefer to do it this way as opposed to sewing the dress pieces together first, sewing the band pieces together and trying to get the band to fit around the bottom of the dress).
Next, sew the two dress pieces together making sure that the seams on the band
line up perfectly with each other.
Now you need to address the armholes so they look neat and finished. I made my own single fold bias tape out of the same fabric I used for the band on the bottom of the dress. If you want the tape to show, you'll need double fold bias tape. Just pin the tape right sides together onto one of the dress armholes. As you can see, I did NOT pin and sew it to the correct side in the image. Thank goodness for seam rippers!! Ha ha!!
Then simply fold over your tape and stitch down.
Thread you tie(s) though the casing. It's easier to do this if you pin a safety pin to the end and use that part to thread it though. Hem the dress to your desired length and you're done! I also added buttons to my dress for more interest but you don't have to.
Try it on your little one and let her have fun running around in her new dress!