There are two different looks you can achieve with a flat-weave rug used as a pillow:textural or patterned. The texture is easier to build on and also offers more forgiving seams. Patterned rugs are a little trickier because you have to make sure the pattern repeat matches up at every seam.
Fold the rug in half. Use a tape measure and marker to mark the rug one inch wider and one inch longer than your desired pillow size. This additional material will account for the seam and any seam waste.
Use dressmaker's scissors to cut two identical squares from the folded rug.
Use the sewing pins to pin the two cut squares together with the right sides facing down. Insert the mercerized cotton into the tapestry needle, then start stitching along the edge of the pillow allowing 1/2" to account for the seam. Walk around the pillow to the second mark, leaving the space between the two unstitched marks.
Turn the pillowcase over so that the inside is facing out. Next, slide the pillow insert into the seamless part of the cover. Once the insert is snug, close the opening with a tapestry needle and mercerized cotton.