What you want to do, is turn the t-shirt inside out and sew up the bottom (remember to back stitch at the beginning and end). I like to use the bottom seam as a guide, sewing just on the left of it.You're then going to lay the t-shirt out flat, with the neck facing you. Once you've done this, cut off both the sleeves at their seam. Again, cut to the left of the seam about half an inch or so.
You will then be left with a what is basically a muscle tee (thankfully you've already sewn the bottom up, so as to not be tempted to pop it on and relive the glory of the 80s). You're now going to cut out the neckline in a big scoop to form the top opening/handles. I tend to start cutting about an inch or two out from the neck seam, how far down you cut is up to you, remembering to keep enough room to hold your groceries!
Sadly, I forgot to take a shot of this bag all finished, but I'm sure you get the idea from the image up top there.
So there you go, eco-friendly craft in minutes!