Awhile ago, I was looking for inexpensive wooden dolls and after looking at my options, decided I'd have to make something if I didn't want to spend a lot of money. I came across clothespin dolls on the internet. I started out by simply coloring the clothespin with sharpie markers and then added felt to make hats, hair and clothes.
After looking at some beautiful clothespin dolls on Etsy, I started using paint and putting large wooden heads on the dolls and stands. The clothespins, heads, and stands are all available at any craft store. At the craft store and online, you can buy wooden doll shapes that you can make other fun wooden dolls.
To add arms, I drilled a hole with my Dremel tool and added some twine with two knots for hands. My girls will color the wooden people with their markers to make their own dolls. The washable marker doesn't last forever, but slowly fades over months of use.