I was experimenting with this today and I've gotten somewhat mixed results. It can work but there are some significant drawbacks.
The first and largest problem is that water + paper = soggy paper...
I started by trying a 1:1 mix of water and glue. As I continued experimenting I increased the amount of glue relative to the amount of water. Despite squeezing out as much of the water/glue as possible, the paper (i'm using 110lbs cardstock) will eventually absorb the water. Once this starts to happen the piece gets lumpy and starts to lose its shape.
The method that yielded the best results for me was to do small pieces one at a time and drying them right away with a blow dryer. This kept the piece from warping out of shape but the outside surfaces (I put the cloth on the inside) still became slightly lumpy. Not a problem if you're going to go over the outside with bondo or whatever. I believe this method could be used effectively as a non toxic alternative but its slow work having to stop to dry each piece of cloth so you don't ruin the paper. Also, as the cloth dries it tends to expand which can change the shape of the piece but not a terrible amount.
If you have a way to seal the paper so that it doesn't absorb moisture that would make the cloth much easier and faster to work with.