A literature review was conducted to assess the psychological aspects of race development among children from different ethnic groups. It examines whether children differ in their development as a function of their own ethnic group. An explanation is offered of how these developing preferences affect young children's self-esteem and interaction patterns. The role of the environment and cognitive factors is also analyzed. Ways to develop effective intervention programs aimed at reducing racial stereotyping and prejudice is considered. The review is divided into five sections. Section 1 reviews the empirical findings about the racial categories and societal evaluations attached to them, which children become aware of in the preschool years. Section 2 describes the studies on children's racial attitudes and the effects of these attitudes on their self-esteem and social interactions. Section 3 examines the salience of race in relation to other social categories and theories employed to explain the effects of salience. Section 4 discusses the mechanisms by which racial knowledge and attitudes are transmitted to children and how these mechanisms influence social development. Section 5 discusses the limitations of the studies and the direction of future research. (Contains 94 references.) (JDM)