What is the role of linguistic labels in inductive generalization? According to one approach labels denote categories and differ from object features, whereas according to another approach labels start out as features and may become category markers in the course of development. This issue was addressed in four experiments with 4- and 5-year-olds and adults. In Experiments 1 to 3, we replicated Yamauchi and Markman's findings with adults ("Journal of Memory and Language," 1998, Vol. 39, pp. 124-148, and "Journal of Experimental Psychology: Learning, Memory, and Cognition," 2000, Vol. 26, pp. 776-795) and extended the paradigm to young children. In Experiment 4, we compared effects of labels with those of highly salient visual features. Overall, results of these experiments provide strong support for the idea that early in development labels function the same way as other features, but they may become category markers in the course of development. A related finding is that whereas categorization and induction may be different processes in adults, they seem to be equivalent in young children. These results are discussed with respect to theories of development of inductive generalization. (Contains 8 figures and 8 tables.)