Use non-absorbent cotton wool (taken from a sealed pack that you obtained from your laboratory supplier). Make the plug & sterilize it along with your Erlenmyer flask by autoclaving at 15psi for 15 minutes. Remember to encase your plug with paper so that it does not become soggy. Later when adding your inoculum make sure everything should be done in aseptic condition (preferably in a bio-safety cabinet).
An excellent answer by Snigdha Maiti. One thing that I would like to add is that autoclaving should be done at 121oC (250o F) [this is the standard process in most biological laboratories for routine work]. Cotton has an ignition temperature of around 400o C so self ignition/scorching will not be a problem. An easy alternative is the use of double layer aluminium foil instead of non-absorbent cotton.
The above approach (and as suggested by Snigdha Maiti) is with regard to how routine bacterial cultures are kept in Erlenmeyer flasks in the incubator-shaker and how their mouths are plugged with cotton.
However, you seem to stress on the technique of sterilization of cotton as well. If working in a forensic laboratory or some other scenario where DNA cross contamination would be an issue, then the most successful non-radiation method to sterilize cotton is treatment with ethylene oxide. If opting for radiation based sterilization methods then gamma radiation is the most successful while UV radiation is the least effective. However, do note that these methods are applied mostly in industrial or forensic settings and not for usual routine laboratory practices. For further information go through this article http://link.springer.com/article/10.1007%2Fs00414-007-0159-5
I agree with Singdha and Aditya. One trivial thing to pay attention to is that the outer side of the cotton plug would not be sterile. So, needless to say that you cannot flip the plug during aseptic processing.
If possible for your experiment and depending upon how much airflow your bacteria need, I would recommend using Erlenmeyer flasks that have screw-on caps and autoclave the flasks with the lids on (slightly open - 1/4 turn) before using for culture.