Yes, it is capitalized and it is not Navajo Indians. It is Navajo people.

Navajo clothing was fashioned and made by the Navajo females

There are two ways you can say "Navajo" in Navajo. Dinémeans "The People" in Navajo. The Navajo call themselves "Diné". Nabeehó is another way of saying Navajo.

the Navajo people in Southwestern United States

The proper adjective form for Navajo is Navajo, as in Navajo Nation, Navajo people, Navajo history, Navajo art, etc. An example sentence: We visited the Navajo display at the museum to see the Navajo jewelry.