T.W.
Although I think the obvious answer for this would be a sheet with holes in it, I have found that any time there is a costume where there is something on their head, it doesn't stay on. So here is what I would do if I were to make my kids a ghost costume. First I would order one of those full bodysuites in white( I usually get them at DiscountDance) then I would get material that matches at the fabric store. Those body suites have a bit of a shimmer to them and it would be cool to duplicate that. Then I would cut huge squares of the fabric and sew them vertically along the body of the suite so it hangs and flows. I would probably then white out their face and spray their hair and you have a ghost. You can go scary or cute, scary I would put chains and dark eyes, cute I would probably leave those out and if it was a girl I would put sparkles.
Good luck!