I know this has happened to you. Your child outgrows an outfit that is one of your favorites. Of course it was their favorite too since it's stained beyond belief. Which makes it hard to part with.
I had a dress that my now 2 year old outgrew quite a while ago (6-9 months). It was a cute & comfortable Harley Davidson dress in a coral color that really brought out her blue eyes. When it became too short to be a dress, it was worn as a shirt. Until it just became too small, period. But it wasn't until recently that I thought of a way that she could wear the dress again, so to speak anyways.
Since the dress was cotton (or a cotton blend, I didn't read the tag), I knew it would stretch perfectly for a headband.
I started by cutting off the bottom hem. Then I cut 2 strips, roughly about 1in. thick & laid them on a flat surface in a giant "X".
Next I joined the ends of each strip together, then sewed all of the ends together. I layered mine in an every other kind of way so that one side wouldn't appear shorter than the other. And I also needed assistance of a table to help push the needle through all of the layers.
After it was double stitched, I stretched it as much as I could. Not only to get it to fit better, but for the strips to curl too.
I attempted to take a picture of my darling 2 year old wearing her upcycled headband, but she wasn't having it. Her baby dolls wore it for a bit, but now it's m.i.a. So another attempt will be made when I find her hiding spot, which I'm sure is where her other headbands have disappeared to. But I'm sure she'll love it then...I hope.