I have been wanting to make a smaller cloth bag that folds into it's own pocket and would be small enough to carry in my purse. I made a cloth bag in the dimensions of a morsbag (18 by 20 inches), see the directions here.
I then added a 7 inch fully lined square for the pocket. Place the pocket at the center bottom of the bag.
When you want to fold it up: fold the bag in thirds lengthwise, then tuck the handles down and fold the bag into thirds again, and then turn it inside it's own little pocket.
Pop it in your purse and you are ready for avoiding plastic bags in almost any setting!