Supplies:
needle
water
magnet
Simply magnetize the needle by rubbing it against the magnet. Carefully place the needle on top of the water. (You can use a cup of water, or as Mac told me at work, find a calm spot in a brook.) The needle will automatically point north.
It took me a few tries to get the needle to stay on top of the water with out sinking. I eventually used a pair of tweezers.

I know you can't tell just from the picture that the needle is in fact pointing north, but I know from looking outside that it is pointing north. I could not readily find my compass, so for future attempts I will make sure and have a compass to verify the needle.