Preparation
Find and prepare a template you like. Print and cut out a template of each doll so it has a quarter of the final shape. The easiest way is to cut out the individual dolls from the full template and glue them to some cardboard. Then cut out half of each doll, so you end up with negative template you can hold to your work piece.
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In case you are planning on carving, the dolls after turning you might want to scale each doll (template) a bit. That will give you more wall thickness so there is material to carve.
Refer to images 1 and 2 for examples of the nesting doll templates. I found this image via a quick google search, but you can easily make your own shapes and templates.
Turning the dolls
We will start turning from the smallest doll up to the largest, so we can ensure the smaller ones will fit inside the larger ones. It is up to you if you want to hollow out the smallest doll, so you have a little box or leave it solid. I will assume a solid doll 1 (smallest) here as this will be used for sizing the inside of the doll we are turning. Aside from the solid doll, the steps are the same for each subsequent nesting doll (number 2 – N, however many you want to make).
Turning doll 1 (solid doll)
- Mount the blank and turn it round, so that it runs true
- Turn the doll to match the template as close as you can
- Finish the doll with sanding and your preferred wood finish
- Part off the doll and finish the bottom
Turning doll 2 – N
preparing the blank
Mount the blank between centers and turn to round. Add a second tenon at the tail end, so you can mount it in a chuck once the blank is split.
now we can mount the blank in the scroll chuck by one of the tenons. I prefer to keep using a live center as long as possible, for extra support. Turn the blank to run true. Add a second tenon at the tail end.
Turn the blank down to the maximum thickness of your doll. This usually is somewhere halfway the body (around the place where the two parts meet up).

Blank mounted in chuck, with second tenon
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Use the best size jaws you have. When gripping the tenon, the jaws should be almost closed and form a perfect circle. non serrated jaws are best as they allow more flexibility in tenon size.
Rough shaping the outside
Mark the high and low points of the doll and the location where you will part the two halves. This usually is around halfway of the body, so that the top half is larger as it includes the head and neck. You can move the location of this split, but the higher up it is, the more fragile the connection.
Remember that the smaller doll needs to fit, so the inner diameter of the lower half should be larger than the thickest part of the smaller doll. Also, mark that location on the template, so you can correctly check the shape later on.

Marking the blank and template
Hollowing the doll
Part off the top part and set it aside. Turn the lower part of the body to match the template. I make the tenon on the bottom and the lip on the top part, so when turning, go past the mark on the template.
In case you are making the lip in the bottom part, you do not have to do that. Turn the tenon (or lip) and hollow out the bottom part, and regularly test that the smaller doll fits inside. If you live in a humid environment, make sure it’s a loose fit as the wood might swell from moisture in the air (assuming you’re using wood).

Hollowed out bottom part
Now is the time to add your preferred finish the inside of the bottom part.
Put the smaller doll inside and mark with a pencil where it protrudes so you know how much of it should fit in the top part of the larger doll.
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Choose a finish according to your desired result and intended use. For example if this project will be sold or given away use a finish that hardly wears or an oil that the new owner can easily find and reapply when needed!
Shaping the top
Mount the top part of the doll and shape to match the template. Again, if you will add the tenon on this part, go a bit past the mark on the template.
Hollow out the top part. Regularly test fit the smaller doll. It should fit inside a bit past the mark you made on it earlier. That way when the larger doll is closed, the smaller one will completely fit inside. Turn the tenon or lip on the top part and test the fit with the bottom part.

Shaping the top part
Matching the two halves
Sand and finish the inside of the top part and part it off. Remount the bottom part of the doll and check that it runs true.
TIP
Put a wet paper towel over the end and gently press on the top part. Remove any excess paper towel that is sticking out. This makes the wood swell a tiny amount and holds the two pieces securely enough for light cuts. If you aren’t comfortable doing this, bring the tail stock back in and use some cardboard or something to prevent marking the work piece.

Attaching the two parts
Now the top part should be secure, and you can finish the nib that is left after parting it off. Match the outside of the two pieces of the doll so the transition between the bottom and top part is smooth.
Finish the outside.
Remove the top part. Test fit the smaller doll one last time. Closing the larger doll up and match the grain on the outside. If all is well, the seam between the top and bottom part should be smooth and closed completely. The smaller doll should fit nicely.
This is the last chance to make any adjustments, so double check everything. Finally, part off the bottom part and clean up the bottom with some sandpaper and your preferred finish.
You now have two dolls that fit and can add any number of larger ones you would like. To add variation, you could paint the inside and/or outside of the dolls, use different types of materials for each doll and so on.

Image 1: Nesting dolls template example

Image 2: Nesting doll, quarter negative templates