Here's what you need:
2 pieces of your fabric cut 3"x5 1/2"
1 piece cut 3"x8"
1 cut 3"x3" (you won't need this if you use ribbon or something else for the ring strap)
hook and loop Velcro cut to 1 1/4" or snap
metal keyring (I bought mine in the craft section at WM)
monogrammed square optional
Here's a few tips that I learned along the way.
Ironing embroidery thread will melt it. I never thought about it being synthetic when I made that mistake. So, my second tip is that the Velcro would probably melt too, luckily I didn't make that mistake too. I suggest covering with a cloth before pressing with an iron.
One more thing I used a 1/4" seam allowance.
Start by cutting your fabric and Velcro pieces. I did mine by cutting a 3" strip of the with of fabric (selvedge to selvedge) then from that I cut the two 5 1/2" pieces, one 8" piece and one 3" piece from the strip to get the four pieces needed for one key chain.
Now we want to fold the 8" piece wrong sides together and give it a press with the iron. You will also fold the 3" piece wrong sides together and give that a press to, but you need to turn the raw edges of that into the center fold just like if you were making double fold binding, press again. It should look like this. If you see extra pieces in there don't let that confuse you. I was making 5 of these at the time I took the pics.
Now we need to draw a line down the center, length wise of the 5 1/2 piece. This will be a guide to place the ruler so you get your corners cut off straight. OOPs, forgot to take pic so had to run back and grab some fabric to show what I mean, so ignore that this piece of fabric is different. But it still gives you the right idea.
Now the next step is the reason for the line. You will need to cut the corners off the two 5 1/2 " pieces. So, line the diagonal line on your ruler up with the center line on your fabric making the top of the ruler line up with the 1" mark on the ruler(note that the ruler is hanging over the top at the 1" mark). I stacked all mine so I could cut them all at once. Cut the two corner pieces off. Now all your pieces are ready to go to the sewing machine.
This is what you should have. Two 3x5 1/2" with the corners cut off, one 3x8" folded in half and pressed and one 3x3" folded and pressed like double fold binding. If you are doing monograms you'll need those cut in small squares and ready also.
Now the next step is only for the monogram, so if you're not doing a monogram then just skip this step. Place your little monogrammed square on one of the pieces that have the corners cut, center it as best you can. You might want to measure, I just eyeballed mine.
Then I did a satin stitch on the edge all the way around in the same color thread as the monogram. I did do a couple with rick-rack around them and then stitched it down but you do it the way you like best!! 
Now take the OTHER piece that has the corners cut off and sew the Velcro to it (if you choose to use a snap skip this step). Line it up between the two top points and down 3/8" from the top. I used a very narrow satin stitch all the way around.
So if you used the hook part of the Velcro for this use the loop part for the other piece which will be now sewn to the folded piece on the end that has the fold. It too will be centered and down 3/8" from the fold. These are the ones on the right side of the pic. 
Next we will sew down both sides of the small 3" piece that we pressed with the double fold. This will be to close and the other side just for looks. I sew the open side first and then back down the other side. 
Once those are sewn I insert them into the metal rings and line up the raw edge and sew a stay stitch down to hold the ring in place. 
These will be sewn to the folded piece on the same side as the Velcro but opposite end. I back stitch here to make sure these are secure and don't pull lose.
Now you should have these three pieces. I have 15 because I made 5 at once. One with monogram (or plain), one with Velcro and the folded piece with Velcro and ring attached. 
We're almost done. Now, take the folded piece with the ring and lay it directly on top of the Velcro piece that has the corner cut, both facing up. Lining up the bottom edges, like this. 
Now lay the monogrammed piece (or plain piece if you choose not to add a monogram) right side down on top of that. Making sure all the edges are all lined up. I pinned my 3 layers so I didn't have to worry about anything shifting. 
Starting on the bottom (short straight edge sew up the long side. I back stitch at the beginning and end so your stitches don't come loose when turning. Sew all the way around to the the other end. 
This is what you'll have. 
Now here is the tricky part. Not hard but tricky because if you don't have it turned right before sewing the bottom seam well it just won't work right. So when you look in the bottom where it is still open you will see the two other pieces and the middle one with the metal ring one it. Turn your piece from between the side of the middle that doesn't have the ring sewn to it and the outer fabric. If you click the pic you will get a close up and see the arrow pointing to where you need to turn the piece thru. 
Once it is turned it will look like this on one side(top one) and this (bottom one) on the other side. I know this doesn't look right, but it is. Go ahead and give it a press on the side that doesn't have the velcro. I was afraid the velcro might melt. 
Next sew a seam across the bottom to close. I backtack at the start and finish here too. 
Snip those corners to eliminate bulk. Reach in and pull the ring out to turn. After pushing those corners out you will want to give it another press with the iron. That's it, enjoy!!!
