I use peaches and cream cotton yarn or lily sugar and cream cotton yarn for dishclothes and pot holders. Lion brand also has cotton yarn and if you have a hobby lobby by you there I love this cotton is really nice. Mary

I also use "The Original Sugar 'n Cream' made by Lily. It's 100% cotton ond one ball (2 oz.) is more than enough for one potholder. I buy it at Michaels. It happens to be made in Canada.

The best yarn for dishcloths is 100% cotton - due to its absorbency. And the 100% cotton examples given previously by Mary and Jannie are all fine for dishcloths.
I've read that yarn with as little as 51% cotton as a component will do. But I have not tried anything other than 100% cotton - for a dishcloth.

What I use my other, regular balls of yarn for is afghan squares - whether they are all acrylic, all wool or a blend of both.
I knit 8 inch by 8 inch blanket squares with different dishcloth patterns and then sew them together. Each square is a short project and it doesn't take long to knit a lot of them. (My afghans vary between are 6 or 7 squares wide and 7 or 8 squares long.)

Jane2 here (Janey elsewhere)

I also use the Lily Sugar 'n Cream yarn for dishcloths. I buy it at Michael's or A C Moore. Every Sunday they have a coupon in the newspaper for 40% off one item.

I use all sorts of leftover yarn. I have dish cloths I made four years ago and the more they are used and laundered, they are just better. I've even used baby yarn for one.It worked fine.

I use Sugar and Cream. I recently tired I Love Cotton and it was way to soft and people didn't like them at the craft shows either.