Treatment of cotton fabrics with elastic textile finishing agents (ETFAs) can render elasticity and softening characteristics to the fabrics. Usually, commercial ETFAs contain two or three components; further it is difficult to ensure homogeneous mixing during textile finishing. In the present study, an aqueous poly(dimethyl siloxane) (PDMS)-modified polyurethane (PU) dispersion (ETFA-1) was prepared as a one-component ETFA and used to treat cotton knit fabrics. The average size of the PDMS-modified PU particles was 179 nm. After treatment with ETFA-1, the stretch recovery rate of the cotton knit fabrics increased from 57.2% to 94.3%, and their softness was also improved.