Children hold rich essentialist beliefs about natural and social categories, representing them as discrete (mutually exclusive with sharp boundaries) and stable (with membership remaining constant over an individual's lifespan). Children use essential categories to make inductive inferences about individuals. How do children determine what categories to consider essential and to use as an inductive base? Although much research has demonstrated children's use of labels to form categories, here we explore whether children might also use the observed discreteness or stability of a trait to form categories based on that trait. In the present study, we taught children about novel creatures and provided them with a cue (discreteness, stability, labels, or no cue) to form texture categories rather than shape or color categories. Experiment 1 found that children (4-6 years, n = 140) used labels but not discreteness or stability cues to form texture categories more often than at baseline. Experiment 2 (5-6 years, n = 152) found that children who later recognized the stability and discreteness cues used them to form categories more often than those who did not later recognize the cues, but were still overall less likely to use these cues than to use labels cues. Results underscore the unique importance of labels as a cue for category formation and suggest that children do not readily rely on the stability and discreteness of a trait to form animate categories despite readily inferring that such categories are stable and discrete. Implications for natural and social category representations are discussed.