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Children's ability to discriminate events that could happen in real life from fantasy events was examined by asking 62 preschool children if events depicted in illustrations from storybooks could happen in real life. For half the children, the pictures showed emotionally neutral events and for the other half, the pictures showed emotionally charged events. The older children (mean age = 5:0), but not the younger children (mean age = 3: 10), were able to distinguish fantasy events from real events. Children in the emotion condition tended to report that the events (both fantasy and real) could not happen in real life. The younger children were as likely to report that a fantasy event could happen in real life as to report that it could happen in a dream.