This study investigated at what point in development 3- to 6-year-old children begin to demonstrate counterfactual reasoning by controlling for fortuitously correct answers that result from basic conditional reasoning. Basic conditional reasoning occurs when one applies typical regularities (such as “If ‘whenever’ it doesn’t rain the street is dry”) to counterfactual questions (such as “If it had not rained, would the street be wet or dry?”) without regard to actual events (e.g., if street cleaners had just been washing the street). In counterfactual reasoning, however, the conditional reasoning must be constrained by actual events (according to the “nearest possible world”). In situations when counterfactual reasoning and basic conditional reasoning would yield the same answers, even the youngest children gave mostly correct answers. However, tasks in which the 2 reasoning strategies resulted in different answers proved unusually difficult even for the older children.