The effect of homonymity on children's use of semantic context to derive word meaning was exami ned in two studies. Participants were presented with stories that included three types of key words: nonsense words, familiar words used accurately, and homonymous words. Thirty-two preschoolers aged 3 ; 7 to 5 ; 4, 32 second graders aged 7 ; 1 to 8 ; 8, and 16 college students in Study 1 indicated the keys words' meaning by selecting one of six possible illustrations per key word. In Study 2, 16 toddlers aged 2;9 to 3;3, 32 preschoolers aged 4;0 to 4;11, 32 second graders aged 7;o to 8;11, and 32 fifth graders aged 10;1 to 11;8 indicated key word meanings either by enacting each story with paper dolls or by selecting one of six possible illustrations. Word type and age, but not response mode, affected children's interpretations. Children from all four age groups made fewer contextually based interpretations of homonymous words than of nonsense words. Fifth graders and adults made more contextually based (rather than literal) interpretations of homonymous words than did younger children. The results suggest that homonymity is a powerful inhibitor of children's tendency to derive a meaning for a new word from context.