This is an addictive hobby, I have made dozens of pairs of grips now for many pistols. When I started I used knives and chisels but modern technology has prevailed and I now use a mains, variable speed, Dremel with the sanding drums. They eat through even old, well seasoned walnut.
I still find an electric drill and some small, very sharp, chisels are the best for inletting for the pistol frame, the lower speed does not burnt the wood as much as the Dremel.
Words of warning:
Use a facemask if you: a) do lots of this. b) use plywood as the glue can be risky.
DON'T use Tanalised wood (decking wood) - it's treated with very toxic chemicals.
Wear eye protection.
Dont buy the B&Q own-brand sanding drums, the glue melts when they get hot and the abrasive band unwinds explosively.
Think twice - cut once, its easy to take wood off and difficult to put it back (but Ronseal wood in a tube is great for life's little mistakes).
Have fun and, if all else fails, you can start again.