This paper discusses how preschool teachers can use observational and portfolio assessment techniques to evaluate both typical and special needs children in inclusive preschool classrooms. Explaining that portfolios can contain teacher observations, checklists of student activities, and samples of student work, it suggests techniques for organizing student portfolios and integrating them into the individualized education plans (IEPs) of special needs students. The final section concludes that portfolios, when combined with developmental checklists, constitute a realistic approach to developmentally appropriate assessment in the preschool classroom. An appendix contains a sample portfolio checklist. (Contains 16 references.) (MDM)