I have not made one of these yet, but the ones I've done with drawstrings, which create the same sort of top edge, I did not fold over the outer heavier, bulkier fabric, but stitched the lining to the very top of the bag, then created a casing for the drawstring by stitching about 1/2" - 3/4" below. I finished the seam allowances at the ends by either hand or machine stitching a narrow "shirt-tail" hem.