My daughter has loved The Mary Frances Sewing Book
. It is a sweet story, and includes a full course on hand-sewing. There is also a pocket full of doll clothes patterns in the back, but most of them are fairly advanced and sized for (I think) a porcelain doll.
Another good resource for smaller children is Feltcraft
. It has lots of small projects that are fun to make and give good results, a few of the patterns are good for five year olds, and the rest will be grown into soon enough. We use wool or wool blend felt, and my daughter has enjoyed tracing the patterns and making little gnomes, etc. Felt bookmarks are also a good project, as she can applique little felt shapes onto a single layer of felt, then blanket stitch on the backing (cotton or felt depending on the weight of the felt you are using. Wool felt is readily available at our Joann fabric store.
I also keep a basket of fabric scraps on the floor for my girls to play with. Dd1 can thread her own needle and likes to experiment with freeform fabric sculpture. Yesterday she stitched together a very-cool-for-a-five-year-old toucan from scraps she had cut, tied, and sewn together.
A couple of her other projects underway are a doll quilt that she hand pieced using a running stitch. I ran the thread through the layers for tying it, and she cut it and is tying it (over halfway done), then she'll whipstitch the binding on to finish it. She is also sewing a dress for her waldorf-style doll. I helped her cut the pattern (lots of curves), and I pink the edges and iron when she finishes a seam, but I haven't put in a stitch. She really enjoys making things, and I'm glad she is inspired and imaginative.