I have got to suggest they do Indian Princess through the YMCA. It's like Indian Guides (now called Adventure Guides to be politically correct), but for daddy/daughter. I went with my dad and sister, we went camping, went on field trips, had craft nights once a month at another member's house... so fun!
http://www.ymcadallas.org/Index.cfm?FuseAction=Page&P... This is Dallas' YMCA, but one around where you live can give you info. Just ask for the Princess Adventure Guides.
Some crafts we did were just get little wooden things and paint them really cute. Of course then they would need to buy some paint and brushes. He could go to Micheal's or even Walmart and get $20 worth of things. Maybe a large wooden letter for their first name to hang on their wall, and they can paint them.
Or, if the weather is good, he can take them to a park, they can gather leaves, little sticks, flowers and them take them home and create a collage on a piece of paper together. They can put it in an inexpensive frame and put a picture of all of them together in the middle. (Collage around it, like a matted picture).
Basically, anything with glue, paint, ribbon, glitter, beads, feathers... and something to glue them on would be fun. Micheals has cute wooden ready to paint mirrors and picture frames for only a dollar.
I am a crafter by profession, so if you need any more ideas or questions on how to do something specifically, just ask!