This paper addresses the issue of when children realize that biological concepts reflect biological knowledge, rather than irrelevant superficial features. Three sets of studies are reviewed, examining children’s use of biological categories as the basis of inductive reasoning. The first reports early-emerging beliefs about biological categories. The second examines how children begin to distinguish between biological and nonbiological categories. The third focuses on children’s own descriptions of underlying similarities (what living things have inside). All three sets of studies suggest that young children expect biological categories to capture underlying similarities that go beyond what is obvious or already known. However, children only gradually distinguish between biological and nonbiological categories in the inferences they draw. In short, although children draw important distinctions between living and nonliving things by preschool age, they do not at first realize that these categories differ in the richness of inferences they promote.