3 cups of water
1 cup of cornstarch
color of choice
Mix very well until there are no lumps and cook over over medium heat until thick and clear. Stir it a lot so it doesn't get clumpy.
Divide into containers and add color. You can use a drop of food coloring, unsweetened kool-aid powder, or kids washable paint (a squirt).
For even more fun, add some fine glitter!
This same mixture also works for glue, just add a bit more cornstarch or cook it longer to make it thicker. Its perfect for paper mache projects. Also, if little ones eat it, its no big deal (it tastes gross though).
Cornstarch and water is fun stuff too, just add water until its a fun liquid/solid texture.
Here it is in action being used to make paper mache bowls.