Four experiments with preschool-aged children test the hypothesis that engaging in explanation promotes inductive reasoning on the basis of shared causal properties as opposed to salient (but superficial) perceptual properties. In Experiments 1a and 1b, 3- to 5-year-old children prompted to explain during a causal learning task were more likely to override a tendency to generalize according to perceptual similarity and instead extend an internal feature to an object that shared a causal property. Experiment 2 replicated this effect of explanation in a case of label extension (i.e., categorization). Experiment 3 demonstrated that explanation improves memory for clusters of causally relevant (non-perceptual) features, but impairs memory for superficial (perceptual) features, providing evidence that effects of explanation are selective in scope and apply to memory as well as inference. In sum, our data support the proposal that engaging in explanation influences children's reasoning by privileging inductively rich, causal properties.