Okay, I've never had to do this, so I'm not an expert here....but it seems to me that the thing to do would be to (gasp!) cut a strand at the hem-place and pull it out all the way around the dress, putting the newly exposed stitches onto a needle. Then, using the excess yarn, start knitting down from those stitches to make a hem, if needed. (If it's stockinette stitch, a hem is needed. Purl a row, knit a row, decrease 10% of the stitches, and knit an inch or so. Turn the hem in at the purled edge, and sew the stitches off to the inside stitches of the dress.) If it's ribbing, or another pattern that doesn't curl, you don't need a hem; just bind-off. Use a larger needle for a loose bind-off, or do a sewn BO. You might want to experiment with a swatch of ribbing that you've unraveled this way; to see what BO looks good. It might look off from a normal BO, because with ribbing, and knitting down from where you started, any new knit and purl stitches will be off by half a stitch. Not noticable in stockinette, but noticable in ribbing.
Cutting the knitting in the middle of the work is a drastic thing, though, and I've not had to do this. It would be nice if someone else would chime in here, and double check my advice. I'm not missing anything obvious, am I?...