Reasoning about human action in terms of beliefs and desires is a common and fundamental form of everyday psychology. How and when individuals come to reason about human action in this way is the general question that inspires three experiments on children's belief-desire reasoning. Previous research has suggested that children younger than four years old are unable to reason about human actions in terms of mental states, particularly in terms of beliefs and false beliefs. In an investigation of young children's underst and ing of belief, 3-year-olds were given opportunities to both predict and explain the actions of story characters in terms of the characters' beliefs. In Experiment 1, 3- and 4-year-olds predicted the actions of story characters. In doing so, children properly utilized information about the character's beliefs, even when these were discrepant from their own beliefs. Three-year-olds failed to predict appropriately only when the character was said to have a false belief. In Experiment 2, children and adults were asked to explain actions of story characters, such as looking under the piano for a kitten. The explanations given by 3-year-olds, like those of 4-year-olds and adults, were mostly psychological, attributing actions not only to desires, but also to beliefs and even false beliefs. In Experiment 3, 3-year-olds were given both prediction and explanation tasks. Children explained anomalous actions by invoking false beliefs, even when they predicted incorrectly the action of a character with a false belief. The results show that previous research, by relying primarily on false belief prediction tasks, underestimated the abilities of 3-year-olds to reason about intentional mental states. The present studies demonstrate that 3-year-olds and adults share a fundamentally similar construal of human action in terms of desires and beliefs, even false beliefs. Such a construal is central to making sense of the everyday actions of others and to recognizing one's own cognitive limitations. The results direct future research endeavors to the issues of (1) an even earlier acquisition of the fundamental concepts of intentional metal states, and (2) subsequent refinements of an existing conceptual framework.