Category-based induction is a hallmark of mature cognition; however, little is known about its origins. This study evaluated the hypothesis that category-based induction is related to semantic development. Computational studies suggest that early on there is little differentiation among concepts, but learning and development lead to increased differentiation based on taxonomic relatedness. This study reports findings from a new task aimed to (a) examine this putative increase in semantic differentiation and (b) test whether individual differences in semantic differentiation are related to category-based induction in 4- to 7-year-old children (N = 85). The results provide the first empirical evidence of an age-related increase in differentiation of representations of animal concepts and suggest that category-based induction is related to increased semantic differentiation.