Our focus for this nativity craft is specifically on the Holy Family -- Joseph, Mary and baby Jesus. It's a fairly simple Christmas project that uses materials that are easily found around the home. (template inspired by this felt ornament from colophon design.)
Construction paper - various colors
Scrap lumber (wood block)
Mod Podge (optional)
All-in-one Nativity Pattern [pdf] (may have to resize to fit your block shape)
1. Print out the pattern pdf, cut out the pieces and trace onto your choice of construction paper colors. (For a personalized craft, those more artistic may want to freehand the family shapes instead of using the pattern).
2. Glue the construction paper pieces to the block of wood, starting with Joseph's body and face, then Mary's and finally baby Jesus. Place and glue the star to top left-hand corner of the wood block.
3. (Optional) Using a sponge brush, apply Mod Podge over the entire top of the block to seal the block and collage work.
Here are our finished Holy Family blocks. I traced and cut out the construction pieces for my preschool-aged son. He glued them to his block himself (left). My first grader daughter freehanded all of her pieces and completed the project entirely on her own (right). It only took her about 15 minutes to make this craft. Both kids are very proud of their nativity blocks.
Later on in the day I noticed my daughter busily at work in her bedroom. She created a stable out of wooden building blocks and added a few other figures to complete her own personal nativity set! It's more special than anything we could ever buy!