I'm collecting the best advice from around the web on how to shrink clothing that's a little too large.
Hot water will shrink clothes to some extent, depending on the materials they are made from, as wool, cashmere and other sensitive fabrics are much more susceptible to shrinkage. Wash the T-shirt in very hot water. Add baking soda to the water to preserve any writing or illustrations.
Dry clothes in a very hot dryer (this is when the majority of the shrinking will take place). Leave the shirt in the dryer for a few minutes after the dryer. If it is still too big put it in the dryer again at a very hot temperature.
Ironing them with a hot iron while they are extremely damp (almost soaking wet). Push the iron from the outer edges of the garment toward the inside so that the garment is not inadvertently stretched as you iron. Keep ironing until the garment is approximately dry, then throw it in the dryer at a high temperature.
This method involves soaking the shirt in boiling hot water in a bowl before washing.
This video demonstrates manipulating a wet wool garment to shrink only the areas you want.
Here's how to turn your oversized t-shirts into fitted t-shirts, using a favorite t-shirt as a makeshift pattern. (Note that the neck, image, etc. might end up way out of proportion.)