First, I cut off the top portion in an arc from underarm-to-underarm and between two of the embroidered motifs. This will be my new bottom hemline. I also cut about 9 inches up each side seam from the old bottom hem. These will form my armholes.
From the top portion I also trimmed off the sleeve edging, which will come into play soon.
Since this tunic was essentially a big rectangle with elastic in the middle, the sides needing to be taken in a bit. So I pinned straight down from the elastic on each side and took in what used to be directly under the original armholes. Now I won't have weird little wing thingies on my hips.
Next, I wrapped the former sleeve edging around my freshly-cut arc of a new hemline and sewed right on top of it.
With the bottom edge complete, I turned my attention to the sleeves. I overlapped the front and back of the top edge and sewed them together in two places, but only about an inch long on each shoulder.
Finally, I hemmed the raw edges I cut earlier to finish off my flowy sleeve flaps.
And it's finished!
Now I just have to wait for it to get warm enough to wear it.