I taught my daughter to read when she was three. Now she has a three year old and she wants to teach him to read. I think we started out just reading her favorite books over and over again and later we got workbooks to do, too. I did find some interesting websites that have suggestions on how to go about it now:
The Well-Trained Mind
Reading Buddy 2.0
Succeed to Read
If you have a suggestion, feel free to add a comment!