This project idea was inspired by Eric Carle's illustrations made from tissue paper. When we did this last year, the first grade students were very excited to be making caterpillars just as the author did.
For younger grades, I would precut the circle head and ovals for the body so as not to take the entire class time cutting. Then, paint regular glue on the back of the shapes and glue them to a white sheet of paper. We also did a very thin coat of glue on top of the caterpillar as well. When dried, it has a really pretty, stain-glass look. Last, the students can use crayons or colored pencils to add "hairs" and facial details.
The circles at the bottom imitate the inside cover art of the book.
*Note* You will need to provide the tissue paper for this project. There is only white available in the art supply room. I bought a large package like this with a 40% off coupon at JoAnn Fabric for $6 and have used it for many projects.