As opposed to the whole word method, phonics teaches children to sound out parts of the words. See the comparison and more information on phonics and its combination with whole word method here: Success To Read

See other resources and suggestions for this method.

Other resources that were recomended by TeachYourBabyToRead members:

• Leap Frog Phonics DVD
• Sandpaper letters
  (thanks to Kay Ness): I only spent about 3 minutes/day on word cards between the ages of 12 months to 20 months. He saw about 1000 sight words during that time.
  After that, we did the sandpaper letters (rudimentary phonics) for only 2 weeks, and his reading really took off. He was reading at college level at the age of 7.
• Leap Frog Fridge Phonics
  (thanks to Heather Maas): For his second birthday he recieved the Leap Frog - Fridge Phonics - its great - he finds letter "A" places it in the tray and it says the sound.
• Reading Lesson Website
  (thanks to Mommie2Denver): ...i did the doman reading method with my son. I worked hard at it for a while. He just didn't seem like he was learning anything and didn't really enjoy it to much. My son just turned three in november. He couldn't read anything. we started learning letter sounds and now he knows all his letters and sounds and I went on a website called readinglesson.com and they had a book to teach phonics. I thought well lets try it. so we printed off the free lessons they are really short about 10-15 mins in the morning and my son loves them. I ordered the book and the cdrom that has a few games for each lesson and now we have been doing it for about a month and he can read pretty well. at the end of the book he will be reading at a second grade level I think it said. He is picking it up really well. it says start at 4 but my son is only 3 and since he seem ready with the sounds we started and I am so glad. Denver started soon after writing the words and he will sound them out in his head all day. he writes cat and goes around saying C A T says cat sounding it out. He is loving it. He writes mom and dad and I never told him to he just did it on his own from learning out of the few mins in the morning. I am so happy with it. He can read mom met dad the dog is sad. I just wanted to say that doman method is awesome and i will try it again with my next child but it may not work for everyone. my son is better with phonics. I just want to do my best to teach him. He is also still doing the bits and I love those and so does he. I do school with him in the morning no more then an hour we have a daily curriculum we follow and he has lots of fun doing it and so do I.
• Teach Your Child to Read in 100 Easy Lessons (click on a link for amazon.com information and reviews)
  (thanks to Alysica): For reading I am also using "how to teach Reading in 100EZ lessons". I am a special education teacher and this program has been tested,
  and re-tested. It is researched based.
  You can find a long discussion with different results from different families here: MotheringDotCommune
• Free printable scavenger hunts for kids , games and other educational fun activities.
• Starfall : the site for kids to navigate and learn
• PBS kids : another site for kids to navigate, enjoy and learn. Especially recomended for a little older kids: Between the Lines show.
• The best of the Electric Company DVD : introducing reading concepts
• Check out other multimedia options.
• Songs that help build phonics awareness: Songs for teaching
• Spanish Phonics: The Spanish Bookstore

Other suggestions on teaching phonics:

• (Thanks to Heather Maas):
  In answer to you question how am I teaching my son the sounds of the
  letters - well it came about like this - My son loves animals and
  can give me the sound of every animal I name - e.g. What does a cow
  say??? and he says "MOOO". I figured if he can associate the name
  of an animal to its sounds - why not a letter and its sound. So I
  started with letter A and we are working through the alphabet. Now
  whenever he sees the letter "A" he says "AAAHHHH".
• (Thanks to Bob and Beth Garsia):
  Withletter/word recognition I use art. I will make a letter out of play-do and then ask them to build a picture incorporating it. For example if I make a capital M they may add a capital "O" for a head, lowercase "o"s for eyes, a lowercase "l" for a mouth, etc. They've made a face (complete with "M" hair) totally out of letters and had fun. I will also incorporate tracing in pudding/sand/etc.