With 1 strand of each yarn, cast on 26 stitches. Work in garter stitch (knit every row) for 2 rows. Work in stockinette stitch until piece measures 18" from beginning, ending with a purl row.
Next row (make buttonhole)
Knit 12, yarn over, knit 2 together, knit 12. Knit 2 rows. Bind off all stitches.
Fold piece in half and sew side seams.
With 1 strand of each yarn, cast on 40 sts.
Bind off all stitches.
Attach strap to side seams at top of purse.
Weave in loose ends and sew on button.