Get a glass bowl of some sort that will hold a candle....votives bigger. Have him glue ripped up tissue paper to it. Or decoupage leaves and flowers that you two pressed to it....Maybe roll one in glue and then a very fine glitter.
Google homemade Christmas gifts kids can make, or projects for kids and so on
You will find a ton of ideas. Go to Walmart and go through the craft section. You will be amazed at all the stuff that is appropriate for a 2 year old.
The wreath idea is good too. I got a piece of muslin on clearance at Walmart from the sewing department. I had all the grandkids put their hand prints on the muslin in a circle. I painted their hands with green acrylic paint found in the little 47 cent bottles using a foam brush. I had someone help me by taking each one to the bathroom to wash their hands in the tub when I would start with the next. Then we took our thumbs and painted them red and made imprints for the berries. I let them use a cut potatoe to make round circles for christmas balls. I went and traced them with glitter glue to make them very festive. I also used the glitter glue to put everyone's name beside one of their hand prints. I used stamps to stamp out of family name and the year. I outlined that with glitter glue. Then I used a glue gun to glue on a nice ribbon around the edges and pretty Christmas flowers in each corner.
I sewed the edges down to make a nice hem and then sewed a pocket in the top for a wooden rod I got at Walmart for 30 cents. I hot glued the ribbon to each end of the dowel so it could be hung on the wall. A nice big banner and the kids had a ball. There are 14 grandkids in our family so it is quite big this project. I will have to use a table runner I think for the updated version in a few years. I figure a white table runner with handprints and berries and balls down the center. Names in glitter glue and so forth.
You could also make Christmas hand towels or bath towels. Or go to Micheals or someplace like that and find Christmas ball kits.
Go on line and find a recipe for salt clay and let him make paper weights for them.
Go to Lowes.com and look under projects and find the coasters project. He can help you put the decoration between the plexiglass squares or you could have him draw or color little pictures to put in between the glass.
Lowes.com has lots of projects on that site.
Also try bhg.com (better homes and gardens)
You will be surprised at what you find and may start printing lots of ideas because you can't choose.
Another resource is FamilyFun magazine. They have tons of ideas for kids of all ages. You can save the magazine and use it for years to come. I love it.
Pine cone angels for their Christmas tree might be fun too. You help him spray paint pinecones. Put masks on and rubber gloves....I recommend the garage for this part. Then let him paint acorns in gold, silver or white. Have him glue little halos made from glitter pipe cleaners to the fat end. Then hot glue the acorn to the pointy end of the pinecone. Hot glue glitter pipe cleaners on each side and bend up toward the face to hold a golf tee that you let your son paint. Put the pointy end of the tee toward the acorn to look like the angel is blowing it. I'm sure you can find some directions on-line that explain it better than I did.
Good luck!!!