The knitting tower (also known as a Knitting Nancy or Spool Knitting) was introduced to my daughter recently. This tower comes from Nova Natural Toys and Crafts (Palumba also sells them). My almost 5 1/2 year old daughter has been enjoying sitting down with me while I practice my knitting and she works on her knitting tower. At this point, she needs me to sit next to her for occasional help. One of the "frustrations" she runs into seems to be the fact that her nail biting habit makes it difficult for her to grasp the yarn from the tower. While we work on not biting nails and getting some heavier yarn, I made our own version of a (little bit larger) knitting tower.
I tried the actual spool knitting idea without much luck and wanted something sturdier than the toilet paper roll idea I've seen. This contraption (shown above) actually has been working well and because it is a little larger it is a little easier and makes a bigger yarn rope result.
This homemade knitting tower is made from a wooden napkin ring, four wooden golf tees, and rubber bands. I basically just kept adding rubber bands until the tees stopped moving around.
As of now my daughter enjoys using both of the towers. It is fun to see the progress as the rope becomes longer and longer. We like to talk about what we could use it for with ideas like garland, climbing ropes for her dolls, snakes, and doll accessories.