We report an experiment in which observations of peers by six 3-5-year-old participants under specific conditions functioned to convert a small plastic disc or, for one participant, a small piece of string, from a nonreinforcer to a reinforcer. Prior to the observational procedure, we compared each participant's responding on (a) previously acquired performance tasks in which the child received either a preferred food item or the disc (string) for correct responses, and (b) the acquisition of new repertoires in which the disc (string) was the consequence for correct responses. Verbal corrections followed incorrect responses in the latter tasks. The results showed that discs and strings did not reinforce correct responses in the performance tasks, but the food items did; nor did the discs and strings reinforce correct responses in learning new repertoires. We then introduced the peer observation condition in which participants engaged in a different performance task in the presence of a peer who also performed the task. A partition blocked the participants from seeing the peers' performance. However, participants could observe peers receiving discs or strings. Participants did not receive discs or strings regardless of their performance. Peer observation continued until the participants either requested discs or strings repeatedly, or attempted to take discs or strings from the peers. Following the peer observation condition, the same performance and acquisition tasks in which participants had engaged prior to observation were repeated. The results showed that the discs and strings now reinforced correct responding for both performance and acquisition for all participants. We discuss the results with reference to research involving nonhuman subjects that demonstrated the observational conditioning of reinforcers. (Contains 1 table and 4 figures.)