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How to Sew a Simple Chemise with a Square Neck and Loose Sleeves

marking the neck stay
We're going to use a stay to give the neckline shape. In this case, it's a piece of ribbon. Anything between 1/8" wide and 1" wide will do, but I'm working with a doll so I'm going 1/8". You could also use bias tape, but it does stretch a little. We need to measure that along the body and mark it. (For human sizes, it's easiest to mark this relative to your bra straps!)
markings on the neck stay
Ultimately, the neck stay needs to be marked with the front neckline width, the distance over the first shoulder, the back neckline width, and the distance over the second shoulder (in that order). If you have a helpful friend or you're very double jointed, you can pin this to your bra to play around with the proportions. Cut the stay so you have 1/4" (doll size) or 1" (human size) of overlap at the end.

gathered neckline
Run a line of wide stitches around the neckline (don't backtack!) Use these to gather the neck slightly.
stay pinned into position
Using the marks on your stay ribbon, pin it in place with the bottom just below the gathering stitches. Start at the front, pin to the sleeve seam at the first mark, go across the front and pin to the next sleeve seam at the next mark, over the sleeve to the next seam at the next mark, etc. Your ribbon should be on the right side of the fabric! (I'm working with the chemise inside out.) You may need to adjust the gathers so that the neckline is the same size as the stay.
ribbon, sewn in place.
Stitch right along the bottom of the ribbon.
seam allowance trimmed off
Trim the neckline seam allowance, so that it is just a little smaller than the width of your stay. Do not cut right next to the stitches, or your chemise will self-destruct. Fold the ribbon to the wrong side, and stitch close to the bottom edge to encase the seam allowance.
neck stay with corners secured
Your neck stay will look rather round. You need to go in and tack little tucks at the sleeve seams to make the neckline square.

decorative stitching on chemise
Roll or turn the bottom hem. If you want, you can go back and add a little happiness at the neck and sleeves. I've used a decorative machine stitch. (This also helps to flatten the tucks at the neckline!)
a real life example
My absolute favorite, easy to wear, inappropriately festive peasant chemise was made this way. (Ignore the scenery - I was in the back of the FoF garden, doing a demo on costume aging techniques.)
sleeve closeup
Since the sleeves are loose, I just tie them up to the straps of my bodice. It keeps them out of the way and gives me a lot of arm mobility. This was actually made from an old bed sheet (garage sale, 50c), which is why it's embroidered like it is.

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