A study examined preschool children's awareness of literacy. Subjects included 18 children from 2 classrooms of prekindergarten children who lived in a black, inner-city neighborhood and attended a school that believed in providing formal reading and writing instruction in the prekindergarten year. Subjects were asked how they were learning, how they tried to read a picture-phrase book, and how they wrote or drew pictures in response to requests to write something. Results indicated that most children were aware of how they were learning; they pretended to read by labeling pictures in the book they were given to read; they usually drew pictures or wrote single letters for the writing task, and they produced meaningful descriptions of their writings or drawings. Variations in the subjects' literacy awareness were related to the instruction provided in school and the quality of home support for literacy. Three case studies illustrate various aspects of the study. (Eight tables of data are included, and 30 references are appended.) (Author/RS)