Our family started several years ago making gifts for family and friends rather than buying. We get items at yard sales and thrift shops (fabric, picture frames, jars, bottles, fabric, etc.), plus find things around the house--cans, jars, toilet paper rolls, boxes--and make things from them. Not only do we have fun planning and making the gifts, the presents are so much more meaningful to the recipient. Even the smallest child can draw a picture or glue magazine cut outs or put stickers on a jar to make a vase or pencil holder. Older kids can make books, sew little pillows or purses, make jewelry, maybe even knit a simple scarf. My children always amaze me every year with their creativeness. Edible gifts are always fun to make and give: cookies, pies, truffles and almond bark, granola, etc. are great options.
Check out the CCFC Guide to Commerical Free Holidays for more ideas.