"The Hungry Caterpillar" is a great book to introduce the life cycle of a butterfly. We always change the word 'cocoon' to 'chrysalis' because that would be the correct term.
Goose and I did a craft that illustrated each part of the life cycle of a butterfly. It came out really cute!
First I colored a leaf (I was going to cut it out from green construction paper, but I thought I didn't have any green. I later found it in an odd spot).
Goose glued down a small white pom for the egg, then several larger ones to make the caterpillar. We glued on legs from a pipe cleaner and some eyes to make it look cute.
For the chrysalis I printed out a template of a cocoon (figured the shape was close enough) then I had her glue down pieces of a cut up brown paper bag (which I crinkled up to give texture).
Finally, we made a butterfly. The wings were made by coloring a coffee filter with markers, then lightly spraying it with a spray bottle. The body was made from a fat craft stick wrapped in yarn, plus eyes, and a pipe cleaner antennae.
After everything was dry I labeled each step and displayed them on our fridge.