Ask your toddler to "read" his or her favorite book to you. If your toddler does not tell you the exact story from the book, that is fine. This allows your toddler to imitate reading habits and practices.
While reading books, ask your toddler questions about the illustrations or "what do you think will happen next?" Be sure not to ask "Yes" and "No" questions. Make sure your toddler has to answer with a more complex answer.
Try telling stories to your toddler without using a book. These stories could be very simple. Encourage your toddler to tell a story about a favorite food, toys or books.
Make a flannelboard story and encourage your toddler to put the pieces on the board. Encourage your toddler to tell the story. Ask the children's librarians for flannelboard ideas.