If you're looking for ways to upcycle old textiles, rag bags are a good way to go. They don't require as much of a commitment as rag rugs do, and they are useful to have around -- beautiful too! The links below take you to a variety of interesting free rag bag patterns.
This tote bag has a sleeker appearance than many of the "scrappy" rag bags you see around. Want to know the secret for how to accomplish that? Be sure to drop by my free pattern and tutorial; once you know how to do it you can apply the same technique to any of the other patterns you see listed here, if you like. Of course, it works both ways; if you'd rather make a scrappier rag bag you can certainly do that too.
You'll crochet this rag bag using fabric strips and single crochet stitch. The bag is lined, and there is a separate tutorial for sewing the lining. These free tutorials are available at the Laughing Purple Goldfish blog.