Read aloud often. For young children, this could even mean reading the same book over and over again.
Discuss the book as you are reading it. Ask open ended questions such as, "Why do you think that happened?" or "What do you think will happen next?"
Discuss the pictures in the book and how they relate to the story. Before reading a page, ask the child if he has any ideas about what will happen based on the picture.
Act out the story with your child. Take turns playing different parts.
Ask your child to read to you. Even if your child cannot read yet, he can still make up a story to go along with the pictures.