Previous studies of children's inductive reasoning have attempted to demonstrate that label information is preferred to perceptual similarity as the basis for inductive inference (Gelman and Markman, 1986; Gelman and Markman, 1987; Gelman, 1988). A connectionist model of the development of inductive reasoning predicts that this will only be true when the percepnial variability of category exemplars is high (Loose and Mareschal, 1997). W e report three studies investigating the model's predictions. Study 1 demonstrates that patterns of categorization can depend on percepnial variability. In study 2 we develop a set of stimuli with differing variability but equal discriminability. Study 3 demonstrates that young children's patterns of reasoning are more affected by the presence of category labels when the inference is from an exemplar of a more perceptually variable category. This study also demonstrates that the basis of inference is not explicable in terms of the ease of the ability to categorize of the stimuli. Implications for the original model are discussed.