Every winter we have a dilemma with our indoor Cocker Spaniel: if we leave him hairy, he's too hot for indoor life and walks around panting and drinking water incessantly. If we shave him, he's too cold when he goes outside.
This winter I solved the dilemma: I shaved the hair off his back and belly and part of his legs, then used his own hair to make a coat for him. His hair was needle-felted into a tailored wool coat that he can wear outdoors and be toasty warm, then take off when he comes back inside. Problem solved!

How to felt a dog hair coat.

You will need:

Water and soap
Grooming shears
A piece of wool or craft felting fabric
Hook and loop fastening tape
Scissors
Straight pins
Needle and thread
A felting brush
A felting needle (preferably a multi-needle gadget)

Step 1: Get Some Hair of the Dog

Almost any animal fur is good for felting. Using your own dog's hair to make a felted coat for him is ideal. You can't get a better color match!
However, getting your dogs hair can be tricky. Dog's don't naturally take to being groomed. My main tips for DIY dog grooming are:

Wash your dog with soap or shampoo before grooming and dry him completely.
Let your dog get used to the grooming shears over a couple days. Show him the shears, turn them on, and give him a treat. Repeat this until he allows you "access" to his fur.
Always shave in the direction of hair growth
Hold your dog with one arm if necessary while shaving with the other

I found the best felting hair was from my dog's legs and belly. It was silkier and finer than anywhere else. Focus on those parts.
Put the hair in a bag and save for later.

Step 2: Measure and Cut the Undercoat

Measure and cut a piece of wool or felt fabric. You can use a tape measure or just hold the fabric up to your dog and measure the length of his body and the width around his chest (the biggest circumference).
Cut two holes for the dog's front legs about four fingers apart (on a medium sized dog). Make the holes bigger than the dog's legs to allow room for movement.
Put the coat on the dog and pin the top together, overlapping an inch. Trim the rear half of the dog coat beginning at the belly. Be sure to clear all plumbing equipment. Leave a nice rear flap to keep the dog's rump toasty.

Step 3: Tailor the Dog Coat

With the basic shape still pinned together on the dog, pin darts wherever you want a more tailored fit using straight pins. Take the coat off the dog and cut the darts open, flattening them so you don't have bulky nobs everywhere.
Stitch the darts with a needle and heavy-duty thread.
Cut a couple pieces of hook and loop tape and stitch them to the two sides of the top of the coat using a needle and thread. DO NOT use adhesive hook and loop tape. No needle will get through the gummy glue.
(I wanted to use sugru and magnets as fasteners like these dish towels, but I'm still waiting for my packet of sugru to arrive).

Step 4: Needle Felting Dog Hair

There are different felting techniques, but the easiest technique for felting a dog hair coat is needle felting (I tried nuno felting into a piece of lace and found that my dog's hair was too short, and I'm not about to spin his hair into yarn to knit & felt).
Needle felting is very easy. All you need is a felting needle (or a gadget that comes with five needles) and a felting brush (or a thick piece of foam).
Place the brush or foam under the fabric that is going to be felted into, spread the dog hair on top of the fabric (spreading the fibers in different directions), and punch, punch, punch with the felting needles.
Repeat.
Repeat.
Repeat.
Until the whole coat is felted.
The hair is woven into the wool fabric, creating a perfect dog hair coat. Needle felting leaves the underside of the fabric with an extra layer of fuzz. That's a good thing in this case because it will keep your dog extra warm in the cold outdoors.