Cardboard box or some other container for the habitat
Modeling clay (we used Crayola's "Model Magic" that comes in different colors)
Items collected from nature (sticks, small branches, leaves, pinecones, etc.)
Miniature toy animals (we used animals you can find at craft stores in tubes. Here is a link to an example on Amazon. This wasn't the exact brand we got although the mix of the animals in this one is exactly what I was looking for but couldn't find at Michael's): http://www.amazon.com/River-Otter-Adventure-Nature-playset/dp/B0038RQ57O/ref=acc_glance_t_ai_ps_t_3
Since we knew we were going to be getting a lot of rain on Labor Day and would need a fun indoor activity, E and I went out in our yard on Sunday to collect some things to make an animal habitat. Although we live in a city, our neighborhood is very woodsy. We have tons of trees in our front yard (including both evergreen and decidiuous), so we have a never-ending supply of leaves, twigs, pinecones, pine needles, etc. We collected pinecones, pine needles, leaves, rocks, and small stems/branches/twigs.
On Monday, I searched in our garage for the perfect box for the animal habitat. I found a shoebox that was just deep enough to keep the items contained, but wasn't so deep that E wouldn't be able to reach in it easily to set things up. Because of how the box made, I was able to cut it so that it only had 3 sides, making it easy for E to reach in and build the habitat.
We started off using modeling clay (we used Crayola's Model Magic and LOVED it) to make the ground and to make a pond. Then we added some of the things we had collected in the yard. We made trees by taking some of the small branches and putting clay around the bottom of them. We made a bed of pine needles for the animals. I made a shelter for the animals by finding four twigs of about the same size, mounting them in clay to make them stand up, and placing a huge leaf on top of them to make a roof. Other than doing that and helping E with the trees, I mainly let her decide what she wanted to do with it.
E had a ton of fun making the habitat, and when she decided it was done, I got out the miniature animals. I got out a couple from a zoo babies animal tube (they can be found at craft stores like Michael's) that we already had for car trips, and also got out a pets animal tube that E's grandmother had been nice enough to get for her on Sunday. Any small toy animals will work, however. If you are talented (I am most decidedly not!) you can even make the animals out of the modeling clay and that would save money if you don't already have toy animals. Below are pictures of the tube of animals and the animals placed in the habitat.
I loved this activity: it involved some outdoor time but was a good rainy day activity (as far as the actual creating of the habitat), it wasn't very messy, E had a lot of fun both creating and playing with the habitat, and I could just let her create whatever her imagination could come up with.