Book reports seem to have been around since the dawn of time. However, to make them fun and make sure the students get the important parts out of the story, they can make the report in comic strip form or in another creative way. They can even do the traditional book report if they want. As long as their chosen activity makes it clear they understand the story, then it is good to let them be creative.
A good activity to go along with any type of children's literature is having the students create shoebox scenes from the story. They can choose any scene from the story that they want and re-create it using whatever they want to in a shoebox. The students can then take turns telling the class about their scene, why they chose it and why it was important to the story. Students often find this fun and interesting to do.
Based on the children's literature book that is chosen, a fun idea is to have the students complete an art project that goes along with the book. For example, if it is the book "The Paper Crane" by Molly Bang, then after reading the book to the students and talking about it, give the students an origami lesson where they learn how to make their own paper cranes and hang them up in the classroom.
Something fun for the whole class to do is to read a children's book to them, then have them act it out. They can write their own scripts and make their own props to go along with it. Since many books do not have a large number of characters, the students can be split into small groups, and each group can act out its own version of the book. This is fun and educational for the students.