If there is a cannon for books one should read to their children, Salman Rushie's Haroun and the Sea Of Stories should certainly be on the list. I first encountered this book as an audio book and later picked up a paperback edition; both are worth having though the audio book (read by Rushdie himself) is currently out of print.
The story is set in the mythical land of Alifbay where Haroun's father is a renowned storyteller whose stories suddenly dry up one day. As Haroun tries to fix the problem, he travels to the Sea of Stories where something very sinister indeed is underway.
Rushdie's chatty narrative is perfectly suited to this tale of storytellers and their sources. He weaves quirky characters (like water genies, flying mechanical birds, and armies arranged like libraries) and odd details (like P2C2Es also known as "Processes Too Complicated To Explain") into an unforgettable tale of one boy's journey to not only help his father but also restore his own faith in his father's gift. The writing manages to be contemporary and timeless at the same time and readers should not be surprised to find themselves laughing out loud.
Buy Haroun and the Sea of Stories.