I need a method of filling in the holes left behind when a knothole
falls out of a redwood fence board (1 x 6). The holes range in size
from 1/2" to just under 2". Would plastic wood work? If yes, what is
the thickest that can be put on in a given layer? Can it be stained to
more closely match the fence?

While I agree that holes are part of the charm of natural wood fences,
in this particular case we are attempting to maximize privacy and
reduce odor from a horse stable next door. The fence is constructed
board on board to eliminate gaps between boards and there are no gaps
at the bottom of the fence either. Now if we could just fill the holes
in an attractive way.