The focus of the study was fantasy-reality distinction of emotional stimuli in early childhood. Several factors were examined, including age differences, children’s wishes, and local context. The research was conducted on a sample of 71 three to five-year-olds. Children were shown images depicting fantastic and real events and figures that elicited several emotions. Then they reported whether each event or figure could occur in real life, stated their wishes regarding its occurrence in real life, and rated their emotional reaction to the image. The results revealed age related improvements in children’s fantasy-reality distinction and positive correlations between children’s reality status evaluations and their wishes, as well as variations in judgment based on emotional content of presented stimuli. Children were more likely to report that neutral and happy stimuli could occur in real life and that frightening and angry stimuli could not occur in real life.