The pattern includes both knitting instructions for this simple bonnet and full size embroidery templates in 3 sizes to enable you to embroider the toadstool design on your bonnet.
The bonnet is knit flat from the front edge to the crown shaping and then you have the option to either continue flat and sew up the small back seam or swap to circulars and complete the crown shaping in the round. Instructions are given for both methods.

Water soluble stabiliser is used to apply the embroidery design to the bonnet.

There is a photo tutorial showing the suggested order of embroidery and links to video tutorials showing you how to use water soluble stabiliser to embroider the design as well as how to work the embroidery stitches.