Just finished knitting some kitchen towels for myself. The pattern is the Mitered Towel from one of the Mason-Dixon knitting books. Very easy and knits quickly. The yarn is Plymouth Fantasy Naturale mercerized cotton.
Free on Ravelry: button on hanging Kitchen Towel pattern by Dishcloth Boutique. Once I've knit the top part, I could use any pattern or stitch I like. I've never had a knitted towel, but if it's made from cotton yarn it should feel normal.