E-books for children

International Children's Digital Library (free digital picture books in English and over 50 more languages)
TumbleBook Library (online collection of animated, talking picture books)
Learning Island (pretty high level reading for EFL, but a great collection of subject area non-fiction to support CLIL)
Storyline Online (stories read aloud by members of the Screen Actors Guild)
Bookhive (multicultural children's books read aloud)
Tar Heel Reader (Beautiful photo books--really easy reading, but interesting enough for beginning teen EFL students)
Hubbard's Cupboard (printable books for emergent language, and also books that support the language in familiar stories--like Brown Bear)
English for Young Learners (great stories adapted for young learners, and tips for using guided readers)
Welcome to the Blagonwight Cave (collection of free digital flip books for young readers)
DLTK (Nice holiday readers and alphabet series)
Primary Success (nice collection of easy readers for holiday themes)
Ghost Stories for ESL learners (adapted stories with support materials and activities)
E-books for Young Learners (levelled readers you can read online or print out)
Nellie Edge (printable books that "sing and rhyme")
MeeGenius (In addition to a large library of digital books, you can personalize and share picture books)

Free resources for teaching reading with young learners

Read Today (free printable activities to teach letters, numbers, colors, and beginning words)
Starfall (free online phonics games)
Reading is Fundamental Leading to Reading website (reading activities and books for children aged 0-5)
Enchanted Learning (books you can print out, and activities for children aged 5-12)
Literactive (phonics, guided reading, and activities to do online or download)
Story Pace Pre-School Library (online stories plus online activities, take home activities, and parent activities)
Learning Planet (alphabet games)
Kindersite (games, songs, and stories for very young learners)
Phonemic Processing by Word Buildng (interactive activities guiding children as they learn to put together and sound out words)

Free Resources for supporting reading skills with older children

Postcards from Buster (Buster the rabbit visits various locations and keeps a blog. There are also videos and songs about each place.)
Surfing the Net with Kids (games and activities in various school subjects)
Grammar Gorillas (games to practice parts of speech)
British Council Learn English Kids (large collection of games, songs and stories)
Scholastic Book Report Sandwich Station (interactive site to teach students how to write a book report)
The Berenstain Bears (simple fill-in-the-gap story activities)
Education Place (activities to help students learn about science in English)
Boolify (interactive site to teach that visually teaches children how to search the internet)
PikiFriends (pen pals with a web 2.0 twist. Safe, secure site for junior high and high school students to interact with other students around the world. You can read more about it in a blog post: Crossing the Physical and Linguistic Divide)
Novel Games (the word search and scramble are most appropriate for EFL students, but the other flash games would be great for bilinigual students how need to continue to learn in English in addition to learning English)
Brain Pop ESL (animated ESL activities)
Times Spelling Bee (great site for games to practice spelling--British English)
Grammaropolis (grammar videos, games, and songs)
Fablevision Place (fun online city for older children to explore. There's a library, radio station, school, cafe, etc.)