Definitely an outside activity! Rain Painting is a great way to keep your kids entertained.
Liquid tempera paints
Spray bottle or (fun!) small squirt gun
Big pieces of newsprint or oaktag
(To truly embrace this craft, string a clothesline outside and hang an old bedsheet up for the kids to paint on!)
Fill the bottle ¾ of the way with water. Add enough paint to color the water (one glob), too much water will clog the spray bottle. Shake well.
Stand a few feet away from the paper and begin spraying.