You are lucky that your son's teacher is astute and recognizes poor handwriting as a problem. As he gets older, dis-fluent, illegible handwriting can cause difficulties with the overall writing process and with math among other things.

As ABQmom suggests, there are interventions that can help - ranging from activities to improve strength, to explicit programs that address the issue head on. I believe the first step to addressing the problem is to get more data about is motor skills and visual processing skills so that the interventions can be well targeted.

If you are in the US and in a public school, you should write a letter to the Principal (and cc his teacher) stating your concerns about his writing. Ask for a special education evaluation in the area of OT and visual processing and visual motor integration (and any other area that you may be concerned with such as academics, organization etc if there are any concerns). The school MUST evaluate in all areas of suspected disability if a written referral is made by a parent, teacher or anyone else. This is covered by IDEA, Federal Special Education Law, in the Child Find provisions. Even if he is excelling in all academic areas, they must test.

The school should use a credentialed evaluator to look at his skills and to determine if he is eligible for services. An OT would help him with the exercises that ABQ mentions, perhaps teach him to write using an explicit handwriting program such as "Handwriting without Tears", work on his grip and core strength if this is an issue, help with other visual integration issues that may also be in play (near and far copying, crossing the mid-line, etc). Sometimes these fine motor issues come into play in art, music (finger plays), and gym and he may get extra support in these areas too. He may benefit from accommodations such as a slant board, having an alphabet strip on his desk, raised line paper.

He is young and extra support can make a huge difference at this point. Given that the teacher is concerns and is not able to address the problem, I think you would be wise to request the evaluation and to determine if he would benefit from special education. Best of luck.

Oh - and here is some info on testing in the area of OT: http://concordspedpac.org/TypesEvals.html (scroll down to #7 and you can click on the live links to get more info)