Place two sheets of felt together good sides facing in that will be used as the front and back of the tooth fairy pillow. Use a ruler to mark off the edges of the rectangle. This will later be fringe.
Using a ruler to mark every half inch on the felt. These will be the stitch holes. Now with the help of hole punch small holes every half inch where the fabric was marked.
Flip the fabric so that the pen marks are on the inside of the pillow and the holes all line up. Then sew the pillow shut using a basic running stitch.
Before the pillow is sewn closed stuff with foam batting. Stitch the hole closed. Make sure the yarn is tied off so the pillow does not spring a leak.
Make the tooth pocket; cut a small tooth-shaped piece of white felt. Use fabric glue or hot glue to attach the tooth pocket to the pillow. DO NOT glue down the top of the tooth so it serves a pocket.