Theory of mind (ToM) and empathy are separate, but related components of social understanding. However, research has not clearly defined the distinctions between them. Similarly, related constructs, such as fantasy orientation (FO), are associated with better ToM understanding; however, little is known about how FO may provide a context in which both ToM and affective empathy develop. Children between the ages of 3 and 5 (N = 82) completed a battery of ToM, empathy, and FO measures. Results demonstrated a developmental progression from ToM to affective empathy: 3-year-olds were likely to have neither, 4-year-olds were likely to have ToM only, and 5-year-olds were likely to have both. Additionally, results indicated that FO predicted affective empathy above and beyond ToM ability, suggesting that children whose play is high in fantasy are more practiced than their peers in sharing emotions. These findings are discussed in terms of how children’s propensity toward fantasy play may contribute to their social development.