After making several items in mitred square knitting for the home, I finally took the plunge to produce an actual garment using this technique! I had some variegated yarn in my stash, and came up with this jacket for my granddaughter. It's quite simple to knit, the squares get smaller as you progress up the main part. The only tricky parts are the half diamonds at the front and top edges; hopefully my instructions will be clear enough.

You can use any yarn that knits to the correct tension: I prefer to use 100% acrylic for kids' clothes, as it washes easily, dries quickly and doesn't itch. Don't iron or tumble dry it though, and wash it at 30 degress C, or it will go out of shape very quickly.
You could ring the changes by making the diamonds in rows of different solid colours, with a plain or striped yoke and sleeves. Be creative!

Toddler’s Domino Hooded Jacket

Materials: 

3 x 100g balls variegated/self striping DK yarn

Pair UK 9/3.75mm needles

3.5mm crochet/afghan hook (with point at other end)

5 buttons

Tension:

24 sts to 4 in (10 cm) on 3.75 mm needles over stocking stitch

Measurements:

To fit approximately 2 to 4 years

Chest 22 in (actual measurement 25 in)

Sleeve seam 10 in

Abbreviations:

K      knit
P       purl
M1    make 1 st by picking up loop between 2 sts and knitting into the back of it
st st   stocking stitch 
g st    garter stitch (every row knit)
tbl      through back of loops
tog     together
st(s)   stitch(es)
S1     slip one without knitting
psso   pass slipped stitch over
RS     right side
WS   wrong side 

Main part

First diamond row

With 3.75mm needles, cast on 36 sts.

Foundation row: K2tog, K to last 2 sts, K2tog.

** Next row (RS): K to centre 4 sts, K2tog, S1, K1, psso, K to end.

Next row (WS): K

Repeat these two rows until 4 sts remain.

Next row (RS): K2tog, S1, K1, psso

Next row: K2tog, cut yarn and pull through to fasten off.

Make 7 more diamonds like this.

Second diamond row

Using 3.5mm Afghan hook, pick up 17 sts along the top left edge of one black diamond, then 17 sts along the top right edge of another.

Transfer the 34 sts to a 3.75mm knitting needle from the pointed end of the hook.

Foundation row: K2tog tbl, K tbl to last 2 sts, K2tog tbl.

Continue as for first diamond from ** above.

Work a further 6 diamonds like this between the ones made for the first row.

Half diamond – left hand edge

Using Afghan hook, pick up 17 sts along top right edge of the second row diamond at the left hand edge (right side facing you). Transfer sts to 3.75 mm needle.

Foundation row: K2tog tbl, K to end.

Next row: K to last 2 sts, K2tog

Next row: K

Repeat last 2 rows till 2 sts remain. K2tog and fasten off.

Half diamond – right hand edge

Using Afghan hook, pick up 17 sts along top left edge of the second row diamond at the right hand edge (right side facing you). Transfer sts to 3.75 mm needle.

Foundation row: K tbl to last 2 sts, K2tog tbl

Next row: S1, K1, psso, K to end

Next row: K

Repeat last 2 rows till 2 sts remain. K2tog and fasten off.

Third and remaining diamond rows 

As for second row, but picking up 16 sts per side.

Continue in this manner, picking up one stitch fewer on each side for each row of diamonds until ypu have worked a row with 11 sts each side (7 rows of diamonds in all).

Top edge half diamonds

Work horizontal half diamonds between the last row as follows:

Pick up 10 sts each side as above. Work foundation row.

Next row: K to centre 4 sts, K2tog, S1, K1, psso, K to last st, turn (leaving 1 sts on other needle.)

Next row: K to last st, turn.

Continue in this manner, decreasing twice at the centre and leaving one more st on the needle at the end of each row until you have 12 sts left. Cut yarn and place these 12 sts on a large safety pin.

Repeat for the other 7 horizontal half diamonds.

The main part complete - note the half diamonds, and the safety pins holding the stitches!

Yoke

With RS facing, pick up and knit 1 st at start of row. Work across 12 sts on first safety pin as follows: **K5, M1, K2, M1, K5. Pick up and knit 4 sts from gap between diamonds. 

Repeat from **6 times more, then K5, M1, K2, M1, K5, and finally pick up and K 1 st at end of row (142 sts)

Work 9 rows garter st, then 2 rows st st, ending with a purl row.

Divide for front and back sections: K 31, cast off 6, K 68, cast off 6, K 31.

Left front

Next row (WS): P31, dec 1 sts at armhole edge of this and next 4 rows (26 sts)

Decrease on K rows only until 14 sts remain.

Cast off 4 sts at start of next neck edge row.

Dec 1 st at neck edge on next 3 rows, at the same time continue to dec 1 st at armhole edge on alternate rows, until 2 sts remain.

K2tog and fasten off.

Back

Rejoin yarn to next block of sts, P 68.

Dec 1 st at each end of next and following 4 rows (58 sts).

Dec 1 st at each end of knit rows only until24 sts remain. Cast off.

Right front

Rejoin yarn and P 38. Work right front to correspond with left front, reversing all shaping.

Sleeves (make 2)

Cast on 39 sts and work 1 inch in g st.

Inc row: K4, (inc in next st, K5) 5 times, inc in next st, K4 (45 sts). Working in st st, inc 1 st at each end of next and following 6^th row until you have 59 sts. Continue straight until sleeve measures 10 in.

Raglan shaping: Continuing in st st, cast off 2 sts at beg of next 2 rows. Dec 1 st at both ends of next 5 rows, then dec 1 st at both ends of each RS row until 7 sts remain. Cast off.

Hood

Cast on 113 sts, K 8 rows.

Inc row (WS): K7, (M1, K11) 9 times, M1, K7 (123 sts).

St st 8 rows.

Dec 1 st at each end of next and every alternate row (RS rows) until 101 sts remain.

Work straight in st st until work measures 7 inches in all.

Cast off. Join back seam.

Button band

With RS facing, pick up and knit 85 sts evenly along left front edge. Work 9 rows garter st. Cast off loosely (note: it may help to use a size larger needle).

Buttonhole band

Pick up and knit 85 sts along right front edge as for button band. Work 4 rows garter st.

Next row (WS): K3, (cast off 3, K8) 4 times, cast off 3, K to end.

Next row (RS): K to first buttonhole, (turn, cast on 3, turn, K8) 4 times, turn, cast on 3, turn, K3.

Work 3 more rows garter st. Cast off loosely (see note above).

To make up

Weave in all ends. Join sleeve seams and underarm seams. Attach hood, matching shaped edges to front neck shaping and easing in fullness to neck. Neaten buttonholes by oversewing around them. Attach buttons. Press seams lightly under a dry cloth.