I realized that my DS4 could read when he began picking words out of the newspaper at breakfast when he was 2 1/2. I hadn't done anything to teach him other than to read oodles of books to him and play word games while we were driving, which he loved. Once I discovered he was reading, I introduced him to Starfall.com, which seemed to solidify his understanding of phonics in just 1 or 2 sittings. By 3 he could read things like Frog and Toad without much trouble and was doing things like correcting my adult friend when she wrote "yea" as "yeah." He's 4 years 4 months now and reads Roald Dahl to me at night, with fluency and total comprehension. Comic books and graphic novels have been a great bridge to independent reading. He recently read a 200+ page Wizard of Oz graphic novel to himself and loved it.
