The UK stage of the race comes to the city on 7 July.
Cycling enthusiast Rad Wagon is recruiting people to knit 3,000 miniature "Tour jerseys" and wool-covered bicycle wheels.
Schools and knitting groups have already offered to start knitting and the council was "interested", he said.
A similar "mini-jersey" idea is being promoted by Harrogate Borough Council for the Yorkshire stage of the race.
The public response to that was so overwhelming the council had to ask people not to send any more knitting to them.
"It's a bit copycat but we can do so much more," Mr Wagon said.
"The city's well-known for its knitters and 'yarn bombers' who cover everything from bikes to trees to lamp-posts. It's 'very Cambridge'.
"I think knitting is in Cambridge's DNA," he added.
Mr Wagon, a cycling skills and bicycle maintenance trainer from Outspoken Training in the city, said he was a fan not only of the Tour de France, but the cultural activities surrounding it.
"It isn't just a bike race. Its history is all about promoting your town and region and that's something we can do.
"The world's eyes will be on us and it's a chance for us to show that Cambridge can do things slightly differently, and perhaps slightly oddly," he said.
A knitting shop owner has offered to give knitting lessons and collect the tiny pullovers, Mr Wagon said.
A cycle shop in the city has also offered a collection of battered wheels which Mr Wagon hopes can also be turned into knitted decorations.
He said he was discussing suitable places his knitted bunting might go, with the city council.
A man who admits he "cannot knit a stitch" is hoping to cover the streets of Cambridge with knitted bunting and wool artwork during the Tour de France.