Paper doesn't just grow on trees anymore. Denim scraps, agricultural wastes, a quick-growing plant called kenaf, even algae are being transformed into "tree-free" papers for home and office that are gaining converts across the country.

"There are a lot of alternative products" for making paper, says Mark Winstein, co-director of the District-based Save America's Forests. "We don't have to cut down the last temperate rain forest to make phone books that will be thrown out after one year."

Forty percent of timber cut in the United States ends up as paper products, from tissues and cardboard boxes to stationary and gift wrap. Newspapers and magazines alone consume more than 250 million trees each year, according to the American Paper Institute.

And while recycling helps, it only goes so far. Each time paper is recycled, the wood fibers shorten and loose strength. "You have to add virgin fiber to the mix at some point," says Barry Polsky, spokesman for the American Forest and Paper Association, headquartered in the District.

Trees haven't always been the source for those paper-making fibers, however. "It wasn't until the 1860s that wood-based papers became predominant," says Paul Stanford, president of Oregon-based Tree Free EcoPaper, an alternative paper manufacturer. "Prior to that, all paper {in the United States} was made from rags" woven of either cotton or hemp. Both plants contain a much higher percentage of cellulose -- the main component of paper -- than trees.

Today, cotton and hemp papers are making a comeback, albeit with a twist. Found Stuff PaperWorks, a micro-mill in San Diego, pulps and blends organic cotton fabric scraps reclaimed from garment manufacturers with a unique strain of cotton that grows naturally in brown and green. The result is a premium, undyed paper in hues of olive and oatmeal.

Blue is the color of choice at Albuquerque-based Watson Paper Company, where denim scraps from Levi Strauss & Co. are converted to indigo paper that the garment manufacturer uses for its letterhead, business cards, shopping bags and other products. Although Watson Paper expects to transform nearly a half million pounds of waste into paper in 1995, such usage is not yet a trend. "Easily 90 percent of all cutting wastes from textiles is going to landfills," says company president Stefan Watson. "It's really a matter of changing people's mentality, {showing them} that what comes off their cutting room floor is not trash, it's a usable material that could be recycled."

The need for a new perspective on paper-making materials is also stressed by companies marketing hemp paper. While few people realize hemp's traditional role in paper and fiber products (the first two drafts of the Declaration of Independence were written on hemp paper), many Americans associate the plant with marijuana. The strain used for making paper is nearly useless as a drug. But growing hemp is illegal in the United States, so paper makers are importing the pulp or finished product.

A number of companies are mixing hemp with agricultural wastes like corn husks, sugar beet discards and cereal straw gathered from U.S. and Canadian farms. "Each year in the U.S., 1,600,000 tons of agricultural wastes are burned or landfilled," says Stanford. "All of that can be used for paper."

One of the most unusual papers currently available is a blend of wood-based recycled paper with algae collected from the canals of Venice. Despite its lowly origins, the paper "worked out great" for San Francisco clothing manufacturer Esprit, says production manager Lori McMinn. Esprit recently used the paper for some in-house publications.

Not all alternative papers take shape from materials considered wastes, however. Several thousand acres of kenaf, a plant native to Africa, are under cultivation in this country, and destined for the paper mill. Growing 14 feet in four months, kenaf stalks provide 2-3 times more fiber per acre than Southern pine, a paper industry staple. Researchers at the U.S. Department of Agriculture have given kenaf high marks for its paper making characteristics.

Kenaf is among the alternative papers offered by Kinko's Copies, the nation's largest copy chain, at some of its stores in California and the Pacific Northwest. In May, HarperCollins released the first book printed on kenaf paper ("Let the Mountains Talk, Let the Rivers Run" by David Brower). The state of West Virginia, Apple Computer and Earth Island Institute are among the other large-scale users.

Currently, alternative papers are commanding premium prices. But as demand rises and volume increases, industry experts expect prices to drop.

Meanwhile, a growing number of organizations and consumers are willing to overlook the price. "Not every decision that people make as customers is based on an immediate dollar-for-dollar comparison," says Winstein of Save America Forests. Buying alternative papers "is a form of investment in our environmental future." CAPTION: Pulp Nonfiction

Like traditional wood-based papers, tree-free papers vary greatly in quality and price. Ask questions when ordering to make sure you're buying paper suitable to your expectations and needs. For example, not all are laser printer compatible. And because most alternative papers are minimally bleached, the colors tend to range from almost white to light brown. Most papers are also available in rolls and large sheets for bulk printing.

Earth Care. 800-347-0070. Mail-order company specializing in environmentally friendly products. Catalogue includes kenaf paper ($18.95 per ream; $49.96 per 500 envelopes), hemp/reclaimed cotton paper ($17.95 per half-ream; $21.95 per 100 envelopes) and reclaimed denim paper ($26 per ream; $26 per 250 envelopes).

EcoFavini. 800-996-0090. Offers three papers: an algae/recycled paper blend, a corn husks/recycled paper blend and one made of 100 percent vegetable wastes ($13 per ream; envelopes by special order).

Found Stuff PaperWorks. 619-338-9432. Off-white, green and beige paper made from organic cotton scraps and naturally colored cotton ($30-$35 per ream; $65 per 500 envelopes).

Tree Free EcoPaper. 800-775-0225. Offers several papers in blends of agricultural wastes, hemp, cotton and recycled wood-based paper ($15-$35 per ream; $15 for 100 envelopes). Also plans to have a 100 percent hemp paper available in January for $5 per ream.

The Written Word, 1365 Connecticut Ave. NW. 202-223-1400. Carries naturally colored organic cotton paper ($10 for a box of 24 sheets and 12 envelopes) as well as a selection of other 100-percent cotton papers ($9.50 for 50 sheets, $6.25 per 25 envelopes).

Vision Paper. 505-294-0293. The source for bulk orders of kenaf paper. CAPTION: A USDA researcher examines a 4-month-old kenaf field in South Texas.