The ability to perform induction appears early; however, underlying mechanisms remain unclear. Some argue that early induction is category based, whereas others suggest that early induction is similarity based. Category- and similarity-based induction should result in different memory traces and thus in different memory accuracy. Performing induction resulted in low memory accuracy in adults and 11-year-olds, whereas 5-, and 7-year-olds were highly accurate (Experiment 1). After training to perform category-based induction, 5- and 7-year-olds exhibited patterns of accuracy similar to those of adults (Experiment 2). Furthermore, 7-year-olds, but not 5-year-olds, retained this training over time (Experiment 3). With novel categories, even adults performed similarity-based induction, exhibiting high memory accuracy (Experiment 4). These results suggest a gradual transition from similarity- to category-based induction with familiar categories.