This study investigated whether young children make strategic decisions about whether to lie to conceal a transgression based on the lie recipient's knowledge. In Experiment 1, 168 3- to 5-year-olds were asked not to peek at the toy in the experimenter's absence, and the majority of children peeked. Children were questioned about their transgression in either the presence or absence of an eyewitness of their transgression. Whereas 4- and 5-year-olds were able to adjust their decisions of whether to lie based on the presence or absence of the eyewitness, 3-year-olds did not. Experiments 2 and 3 manipulated whether the lie recipient appeared to have learned information about children's peeking from an eyewitness or was merely bluffing. Results revealed that when the lie recipient appeared to be genuinely knowledgeable about their transgression, even 3-year-olds were significantly less likely to lie compared with when the lie recipient appeared to be bluffing. Thus, preschool children are able to make strategic decisions about whether to lie or tell the truth based on whether the lie recipient is genuinely knowledgeable about the true state of affairs. (Contains 3 figures.)