We know that even young children are proficient tool users, but until recently, little was known about how they make tools. Here, we will explore the concepts underlying tool making, and the kinds of information and putative cognitive abilities required for children to manufacture novel tools. We will review the evidence for novel tool manufacture from the comparative literature and present a growing body of data from children suggesting that innovation of the solution to a problem by making a tool is a much more challenging task than previously thought. Children's difficulty with these kinds of tasks does not seem to be explained by perseveration with unmodified tools, difficulty with switching to alternative strategies, task pragmatics or issues with permission. Rather, making novel tools (without having seen an example of the required tool within the context of the task) appears to be hard, because it is an example of an ‘ill-structured problem’. In this type of ill-structured problem, the starting conditions and end goal are known, but the transformations and/or actions required to get from one to the other are not specified. We will discuss the implications of these findings for understanding the development of problem-solving in humans and other animals.