Updated March 12, 2007
Materials:
H hook Newborn size or large preemie in (parenthesis)  (F hook fits a 2 lb preemie follow numbers given in parenthesis)
2 oz  Caron's Simply Soft Yarn or Lion Brand's Pound of Love Yarn
One 1/2" button.
DC= Double Crochet    st= stitch    ch= chain    sp = space    sc = Single crochet

*Shell: (dc, ch1, dc) in indicated stitch.

Starting at the top of the Shirt
Chain 48 (fits 8-9 lber)  (44 chs for large preemie or small newborn)
Row 1: DC in 2nd ch from hook (counts as first dc now and throughout) and in the next 6 (5) sts.  Make a *shell (dc, ch1, dc)  in next st, dc in next 9 (8) sts, shell in next st, dc in next 12 st, shell in next st, dc in next 9 sts (8 st), shell in next st, dc in last 7 sts (6 st). Ch 2, turn.
Rows 2-6 :  (do 5 rows for preemie size) DC in the 2nd dc from the ch2.  Dc in every DC including the ones on either side of the shell, to the ch-1 sp, make shell in ch-1 sp, Dc across to next ch-1 sp, shell in ch-1 sp, dc across to next ch-1 sp, shell in ch-1 sp, dc across to next ch-1 sp, make shell in ch-1 sp, dc in remaining last space.  Ch 2, turn. (Be sure you start in that 2nd chain from the hook and finish at the very end each row!)  
Row Counts:
Row 2 = 59 DC
Row 3 = 67 DC
Row 4 =  75 DC
Row 5 = 83 DC
Row 6 = 91 DC
Row 7:  (6) Dc to first ch-1 sp, fold garment in thirds and connect first and second ch-1 spaces (the holes) with a dc. Dc across to next ch-1 sp, fold shirt in thirds again, connect 3rd and 4th ch-1 spaces by making a DC in the 4th ch-1 space. Dc across to end. 
Rows 8-14: (7-13) Ch 2, turn. DC in each DC across. 
At the end of Row 12, ch 1 and turn.
(You can make it more fun by changing colors on a few rows)

IMPORTANT step for finishing - Go around outside of shirt
Rnd 1: Sc around the entire shirt in stitches or just spaced as evenly as possible, making 3 sc in each 'corner' st.  (on the sides just crochet the sc in a 'hole' along the edge there.) Join with a sl st to the first sc you made.
Cut yarn about 4" and weaver under.  Stitch a button to the top of the vest/shirt and you can easily make a button hole with one of the 'holes' in the shirt.

Rnd 2 if you want to add Buttonloops: At the end of RND 1, Ch 1 and turn so you are going up the front to make the botton loops. Sc in first 3 Sc (Ch 2, skip 1 Sc, Sc in next 4 Sc), repeat to the top of the shirt. Continue by Sc in remaining Scs around the entire shirt, remembering to make 3 sc in each 'corner'.   Join with a sl st to the first sc of that round.

Stitch buttons into place down the front.  (The photos do not show the buttons, because I can't find the button-bag today)
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(Offsite link)  Make a ruffled DIAPER COVER to match too!  Leave off the ruffle for boys.