This paper advances the hypothesis that young children use narrative play and stories to construct two types of fiction, the worlds of "what is" and "what if." Heinz Werner's conceptualization of children's spheres of reality, in which actions, symbols, and events are constructed in particular ways, is used as a theoretical framework for understanding children's play and stories. Drawing on examples of children's spontaneous pretend play and story telling, the paper argues that, beginning in their second year, children use pretend play to differentiate the worlds of everyday-lived reality from an alternative pretend sphere; the world of "as if." By their third year, children engage in play which hangs on a narrative framework. Such pretend play offers children further options: the fictional world of plausible make believe which simulates everyday life, "what is," and the fictional world of more fantastic possibilities, "what if." While the child's use of a narrative framework in her pretend play expands her range of psychological worlds, the developmental shift to purely verbal stories, sometimes during the child's third year, significantly adds to her ability to explore such worlds. An examination of the language young children use to accompany their narrative play and to tell stories demonstrates the ways in which children exploit the narrative form to contrast, compare, and traverse the constructed worlds of "what is" and "what if."