Research has examined how gender stereotypes and sexism in picture books affect the development of gender identity in young children, how children's books in the last decade have portrayed gender, and how researchers evaluate picture books for misrepresentations of gender. A review of the research indicated that gender development is a critical part of the earliest and most important learning experiences of a young child. Picture books provide role models for children in defining standards for feminine and masculine behavior; gender stereotypes and sexism limit children's potential growth and development; non-sexist books can produce positive changes in self-concept, attitudes, and behavior; and picture books in the last decade have shown some improvement in reducing stereotypes, but subtle stereotypes still exist. Recommendations include: teachers, parents, and care-givers need to be critical in evaluating books they plan to share with young children; teachers and parents need to become familiar with criteria for evaluating books; teachers need to be critical in selecting multicultural literature; more minorities, particularly authors of Mexican American and African American ethnicity, need to write fiction for young children that authenticate their heritage; universities need to train teachers to be aware of the use of male-dominated language and the positive benefits of using non-sexist books and classroom materials; and research on books published should continue. (Contains 21 references, appendixes contain a checklist for sexism in children's literature, and two tables and two figures of data. (RS)