Inductive generalization is ubiquitous in human cognition. In the developmental literature, two different theoretical accounts of this important process have been proposed: a naïve theory account and a similarity-based account. However, a number of recent findings cannot be explained within the existing theoretical accounts. We describe a revised version of the similarity-based account of inductive generalization with familiar categories. We tested the novel predictions of this account in two reported studies with 4-year-old children (N = 57). The reported studies include the first short-term longitudinal investigation of the development of children's induction with familiar categories, and it is the first study to explore the role of individual differences in semantic organization, general intelligence, working memory, and inhibition in children's induction.