Elizabeth Willbanks' hand plunged into a pile of rags, bric-a-brac, foam rubber and feathers. She retrieved a snippet of gingham-checked cloth, no bigger than a postcard.

"This can be a nose," she said. "Or an ear. Or a pocket for a queen's dress."

Her hands moved to a stack of paper, old flyers announcing the 1978 opening of the Gunston Arts Center. "All this would be just thrown away," she continued. The tone of her voice suggested that she was referring to a heinous act. "But, look, we can take this paper and make a puppet."

The twenty kids in the puppetry workkshop she teaches at Gunston had still other ideas. A rolled-up piece of paper, the beginning of a rod puppet she was showing them how to make, became: A torpedo launcher a megaphone, a sword, a telescope and even an enterprising, if ineffective, umbrella. And that was only while the aspiring puppeteers were waiting for their turn at the oneScotch tape dispenser.

Willbanks used two piece of paper and Crayola crayons to make a puppet with a large, gaping mouth. A third piece of paper became a rod that moved the mouth.

"This is my old kindergarten teacher, Mrs. Wright," said Laura Brown, age eight, introducing her androgynous-looking puppet to seven-year-old Kevin Doheny. Mrs. Wright's mouth moved up and down in greeting.

Kevin glanced over at Mrs. Wright briefly, then thrust his own puppet into Laura's face. "This is a sheriff, with a big mouth," he shouted, exhibiting rather the same characteristic he attributed to his puppet.

His brother Craig, six, worked halfheartedly, preferring to talk soccer with his neighbor Adam Cummings, who was wearing a Washington Diplomats T-shirt.

The children sat at small tables in the library of what was once Gunston Junior High, now the home of a recreation and adult education center. The school-like atmosphere still pervaded, at least initially, and they entered the room quietly in twos and threes.

By the end of the hour, however, things, were hopping.

"You sure were quieter last time," Nancy Smith remarked to a new friend, Bronk Williams,

"Toot, toot," he replied, using his puppet ss a megaphone and aiming for Nancy's ear.

"If the instructions become too complicated the kids get restless, and I end up babysitting for an hour," Willbanks said, reaching over to help Bronk tape his puppet. He tooted a thanks.

"Live and learn," she added ruefully, as another table of children holding untaped puppets implored her to come help them. "I didn't think about them getting impatient about waiting their turn to use the tape."

For five summers Willbanks traveled through Maryland's Eastern Shore as part of a two-person performing group. This is the first time she has taught puppetry, but she thinks that the popularity of Sesame street and the Muppets have helped make her job easier.

"Some of these kids are here because their mothers want someplace to put them for a few hours," said Willbanks. "Others, especially the older ones, are already really involved in art or in dramatics."

Willbanks shows the six- to nine-year-olds how to make a different kind of simple puppet at each of the six workshop sessions. The ten- to twelve-year-olds construct and then perform with cloth puppets that they designed themselves. "I didn't tell them they'd be performing together until after they began their puppets," she said.

"At first, they got worried: For example, how would a queen and a cigar-smoking fish [two of their characters] ever meet? But now as they work, the kids talk and start thinking of ways their puppets might get together.

"When I was little I don't remember ever seeing a puppet show," said Willbanks. "I never thought about what a puppet was until college. But these kids are exposed to puppetry every day on TV, so they already have ideas about what puppets can do. Which is everything."

HOW TO MAKE A ROD PUPPET To make a simple rod puppet, you will need three pieces of stiff paper, about 8 1/2 by 11; tape and crayons. Roll two of the pieces of paper lenghtwise, so that they took like paper-towel rolls, and tape each of them. One of the rolls should be able to fit inside the other.

On the smaller roll, draw a face and a wide-open, very long mouth. On the larger, draw the rest of the mouth (a filled-in U) and any kind of body you want.

Roll the third piece of paper very tightly and tape it inside the paper that has the top of the face. The rod manipulates the puppet, so that its mouth moves up and down. MORE PUPPETRY -- Gunston Arts Center, 2700 South Lang Street, Arlington, will offer additional workshops beginning next Tuesday. Workshops are free for the six- to nine-year-olds. There is a $3 supply fee for the older children's workshops. For information, call 558-2161. CAPTION: Picture 1, THE CONCENTRATION OF CREATION, MARKIA JEMERE, SEVEN, MAKING HER PUPPET.; Picture 2, PAULA TARNAPOL'S PUPPET. By John McDonnelland Ellsworth Davis