Children aged 3 to 8 years old and adults were tested on a reality–fantasy distinction task. They had to judge whether particular entities were real or fantastical, and response times were collected. We further manipulated whether the entity is a specific character or a generic fantastical entity. The results indicate that children, unlike adults, show a tendency to err by judging fantastical entities as real (response bias toward reality). All children were significantly slower when categorizing fantastical stimuli compared with real stimuli. We conclude that the process of classifying items into real versus fantastical categories develops at least until children are 7 to 8 years old. (Contains 2 figures and 1 table.)