Here's a simple project that puts to use some of the scraps a butcher generates. You can also use the real beef bone dog bones that PetsMart sells.
I recommend getting the bone from someone who owns dogs that chew on them (finding them in their yard) or talking to a local butcher. Personally, I get an infinite bone supply from my neighbor's woods. Her dogs consume an enormous amount of treats, and I find the leftover bones buried amongst the conifer needles.

These little bone carvings make great necklaces, charms, and trinkets. If you tea-dye yours like I did here, they will have an natural aged quality that is irresistible to surfers, beach bums, and tourists :D

I have a blog, here!

Step 1: Cutting Down the Bone

You want to cut down the big bone (on the far left) into a little bone blank (on the far right). Plan all your cuts and you will get the maximum use of the material.

I used a band saw. The blade is 3/8" wide (6 teeth/inch), and I recommend the same for you.

WEAR SAFETY GLASSES!

Step 2: Plan the Design

Draw out your design on the bone blank. If you get real good at carving, you won't need to do this. I don't plan out my designs. Most of the time, I just wing it.

Step 3: Cut Out the Design

Use a band saw to cut out your design. You know your limits...be careful! I use gator grips to hold the piece if there is ANY chance the blade could grab.

The picture is a bit blurry because my band saw is not on level ground...it rattles :P

Step 4: Sanding

Use a drum sander to clean up the surface. Make sure you round all the edges or it will look blocky and manufactured!

If you plan to do this a lot, you'll need to get a respirator. Bone dust has some serious long term respiratory effects if you are exposed to it a lot.

Step 5: Drilling the Eye

I don't know the size of the drill bit I used, so just use whatever size you think looks right.
Go slowly and in spurts or you'll overheat.

Step 6: Dyeing

Mix 1/4 cup white vinegar with 1/4 cup dry powdered instant tea. Mix it up gently and put your bone bead in it for about 5-24 hours.

The vinegar dissolves the top layer of calcium and impregnated those cells with tea. After the bones have soaked in the dye, fish them out and GENTLY rinse them. The dye won't be very stable until the bone is completely dry.