A story-stem paradigm was used to assess interpretation bias in preschool children. Data were available for 131 children. Interpretation bias, behavioural inhibition (BI) and anxiety were assessed when children were aged between 3 years 2 months and 4 years 5 months. Anxiety was subsequently assessed 12-months, 2-years and 5-years later. A significant difference in interpretation bias was found between participants who met criteria for an anxiety diagnosis at baseline, with clinically anxious participants more likely to complete the ambiguous story-stems in a threat-related way. Threat interpretations significantly predicted anxiety symptoms at 12-month follow-up, after controlling for baseline symptoms, but did not predict anxiety symptoms or diagnoses at either 2-year or 5-year follow-up. There was little evidence for a relationship between BI and interpretation bias. Overall, the pattern of results was not consistent with the hypothesis that interpretation bias plays a role in the development of anxiety. Instead, some evidence for a role in the maintenance of anxiety over relatively short periods of time was found. The use of a story-stem methodology to assess interpretation bias in young children is discussed along with the theoretical and clinical implications of the findings.