The effect of fairytales on education and development of children in first two grades of primary school is explained in this master thesis. History and development of fairytales trough years has been presented. Different theoretical approaches to origins of fairytales have been analyzed and explained and development of theories about fairytales has been shown. In this master’s work, fairytale is defined as a form, and divided in folk and art category. Motives, characters and concepts that emerge in fairytales have also been described. Freudian and Jungian concepts of psychoanalysis on fairytales and their influence on children’s education and beyond have been presented. Bibliotherapeutical effect of fairytales and their impact on understanding and dealing with problems has also been researched. Impact of fairytales on children’s education has been analyzed, and with them messages and morals from fairytales child perceives, understands and projects in daily life. The method, with which a child in first and second grade of elementary school needs to analyze and interpret a fairytale, has been determined. Two fairytales have been analyzed and preparations for implementing these two fairytales in class have been created. It can be concluded that fairytale teaches children positive characteristics like honesty, appreciation of truth and kindness, but it also teaches children how to deal with life’s problems and how to suppress negative moods and emotions. Through reading and listening to fairytales and thinking about them children begin to learn about emotional intelligence and develop it. In my opinion, fairytales should be an integral part in literary upbringing of every child.