I pulled out some sheets of shrink film lying around in my art cabinet so we could play with polymers. Polymers are long chains of molecules that can be manipulated in different ways. Shrinky Dink and similar thermoplastics are stretched using heat. When you re-heat them, they revert to their original shape. Here's a handout for kids from the American Chemical Society on making your own shrink film from recycled clamshell containers from the bakery or salad bar. Look for the #6 recycling symbol (other plastics will react in different ways in heat -- including by giving off toxic fumes). Number 6 is for polystyrene, the same stuff that Styrofoam is made out of. You obviously want the hard, thin, clear plastic, not the expanded puffy stuff.
Here's what the kids made:
(By the way, it was a great day to be baking things, a brisk 50-something. In May. Helped me hold out against the urge to turn the heat on.)