The aim of this thesis is to explore the possibilities of encouraging lexical development of preschool children by using literary texts. Project activities were carried out with that goal, using a fairy tale called Brother Jaglenac & Rutvica sister, written by Ivana Brlić-Mažuranić and a comparison of children's speech before and after project activities was made. This thesis also presents the development of children's speech, with specific retrospect to children's lexical development. Development of children's lexis is happening in a close environment in which the child is in, therefore, a review of the possibilities of a encouraging environment in stimulating the overall children's creativity, including linguistic creativity, is made. Particular emphasis was put on the importance of the fairy tale for lexical development, ways of interpreting fairy tales and the meaning of symbols in fairy tales. During the project activities described in this thesis, audio recordings of children's speech, children's artwork and photographs taken by children were collected, which in digital form created an animated film. Audio recordings of children's speech were transcribed and analyzed, and the breakdown showed that the performed activities using the literary text had a positive effect on the children's vocabulary, apropos, on children's lexical development.