The Collaborative International Dictionary of English v.0.48:

Chenille \Che*nille"\ (sh[-e]*n[=e]l"), n. [F., prop., a
   caterpillar.]
   Tufted cord, of silk or worsted, for the trimming of ladies'
   dresses, for embroidery and fringes, and for the weft of
   Chenille rugs.
   [1913 Webster]

WordNet (r) 3.0 (2006):

chenille
    n 1: a soft tufted cord used in embroidery [syn: chenille,
         chenille cord]
    2: a heavy fabric woven with chenille cord; used in rugs and
       bedspreads