These are the stores in my area that I typically get fabric from:
Hobby Lobby
Hancock Fabrics
Calico Rose Quilt Shop
(Calico Rose has some great fabric, but can be pricier)
There are also some locations that mainly carry decor fabrics
(SMI's, etc.--decor fabrics are great in the use of bags and other items that need to hold up to repeated use)
I also shop from time to time in Winfield, AL @ Betty's Fabrics/Warehouse Fabrics--which has the largest selection of decor fabrics I've seen anywhere. I've used some of their stuff in clothing and bags--they have some great coordinating polka dots, checks, paisleys that work great for children's items. If you are ever passing through Winfield and love fabric, you have to check them out. You just might spend 1/2 a day there.
NOTE: If you would like to look on your own--there are some great fabric stores online.
There are several etsy shops that sell fabric (search http://www.etsy.com/). I also like to look @ http://www.fabric.com/.
And you can even order fabric from some of the boutique trunk show brands that sell children's clothing @ great prices: Chez Ami Fabric
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