There is a need to develop a circular economy for cotton industry by cutting carbon emissions and decreasing waste and pollution for Australian cotton industry. To address this, natural dyeing as a more sustainable coloration alternative was trialled to develop cotton-based smart textiles with chemical sensing capacity triggered by a colour-changing mechanism. Natural colorant was obtained to demonstrate the colour-changing capacity on cotton fabrics after the coloration process. Cotton-based smart textiles with chemical sensing capacity was prototyped and its related technology was explored. The natural dyeing recipe specially for cotton was optimised, and the colour-changing mechanism was discussed for further development of chemical sensing capability. Some prototypes of design work using the obtained colour change yarns were demonstrated. This project contributes to the development of circular economy for Australian cotton by employing a sustainable alternative coloration technique with the capability to develop smart textiles.