Put them in groups of 3-5. Instruct them to whisper so they don't give away the jokes to their classmates. Set a minimum length, such as 100 words. Give them a list of parts of speech, such as common noun, proper noun, transitive verb, adverb, etc., and require that they include at least one of everything on the list. Each Mad Lib must be unified - a story, a set of instructions, a letter - it can't be a conglomerate of unrelated ideas. The weirder, the better. For example, they could have one alien writing a letter to another alien about Earth, and include all kinds of misperceptions. (Remember Hitchhiker's Guide to the Galaxy? The alien from Betelgeuse chose to go by the name "Ford Prefect" because he had mistakenly thought cars were the dominant life form on Earth!)
When they're done, one person from each group will go to the board and list the parts of speech they need, with any additional instructions (such as "proper noun (type of food)"). As a class, fill in one group's blanks at a time. A group may not offer solutions for its own Mad Lib.
Then each group will send one person to the front of the class. They'll take turns reading their groups' Mad Libs. At each blank, the reader will pause and gesture to the class, which will, in chorus, say the word they chose. Hopefully this will get pretty funny.
Come up with some kind of small prize or reward for the funniest group. Choose the winner yourself, or have the class vote on it.
Happy Mad Libbing!
