A study investigated whether children's early book reading experiences at home were related to later narrative skills, and whether narrative skills were related to school measures of literacy and language. Data were collected as part of the Home School Study of Language and Literacy Development, a longitudinal study designed to explore the relationships between early language experiences and later literacy and school achievement. Subjects were 62 mothers and children who carried out a story retelling task during the third annual home visit when the children were 5 1/2 years old. Mothers' talk during book reading was analyzed, and the stories retold by the children were transcribed and coded for story sense, non-pictured information, and length. Results indicated that: (1) book reading experiences at home at age 3 1/2 were related to the child's story retelling 2 years later; (2) home literacy environment at age 3 1/2 was associated with all 3 measures of story retelling and contributed to predicting the quality of the retelling; (3) children's story retelling in kindergarten was associated with kindergarten measures of language and emergent literacy; (4) story retelling was even more strongly associated with reading measures in first grade than in kindergarten; (5) all story retelling measures were associated with first grade reading and language skills; and (6) incorporation of information about the home literacy environment obtained at age 3 1/2 contributed greatly to predicting first grade reading performance. (Contains 7 references and 7 tables of data. An appendix presents the full text of the story the children retold.) (RS)