This paper explores the development of humor, the positive potential of young children's humor, and resources for harnessing the energy of humor. The literature on humor is dominated by two theoretical streams: psychoanalytic theory, which recognizes humor as a vehicle for expressing emotions, particularly unacceptable emotions; and cognitive theory, which suggests that humor occurs when there is a restructuring of a pattern of elements. Humor requires the same type of cognitive insight as does creative problem-solving. A theory of the development of humor formulated by Paul McGhee focuses on cognitive advances that enable a child to perceive and generate cognitive incongruities. The origins of humor can be traced to smiling and laughter, which appear during the first year of life. The humor of preschool children is connected to the total context of their language experience, and often involves distortions of, and challenges to, verbal and conversational conventions. Preschoolers' humor is more often exhibited in cooperative play and ongoing play relationships than in destructive or separate activities. Suggestions for nurturing humor in young children are offered. A reference list of 20 items is provided. (BC)