Wendy Watts hopes to generate funds for diabetes charities at her shop Nicoleivy at Mill Street in the town by selling Christmas baubles.
It comes after her godson Keaton Allison, five, was taken into intensive care as a toddler after carers missed the signs of his Type 1 diabetes. He pulled through but needs an insulin pump to get day-to-day.
Keaton's mother Catherine Allison said: "The symptoms of diabetes can easily be mistaken for other illnesses and are often missed, even by trained medical staff, and that is what happened with Keaton.
"His lack of appetite and thirst were misconstrued as a throat infection."
With every bauble from the tree sold, Mrs Watts will donate the proceeds to Bishop Auckland Hospital's Paediatric Diabetes Fund and JDRF, which funds research.
The funds also see more youngsters like Keaton get an insulin pump, which is an easy-to-use alternative to injections.
The appeal will run until Christmas Eve and a hamper worth more than £60 will also be up for grabs in a raffle.
Mrs Allison said: "Having a pump has improved Keaton's quality of life and helped him at school where teachers have been trained to use it.
"He enjoys school and has lots of friends. He hasn't let the constant need to monitor his food intake hold him back in any way and, apart from the odd low, he is generally a bundle of energy."
Mrs Watts, a mother-of-two, also from Crook, opened the trinket shop while taking a break from a customer services job to have her second child.
She said: "We pride ourselves on selecting unique and exquisite products mostly sourced from talented local artists and designers. "We chose these two charities because of my godson, Keaton, and I wanted to raise funds and awareness.
"I have seen what he and his family have been through and we wanted to do something to help others."