The magician displays two red silk handkerchiefs, knots them

Freely display two red silk hankys & knot these together at the corners.
Asks a female spectator to place the knotted part inside her dress, making sure it doesn't fall.

Now show a third different color silk and VANISH it! "You'll make it appear tied between the other silks"

But, when the magician steps behind the spectator, grabs the hanging ends of the silks and pulls them out, a pair of panties appears tied between!