Assessment of young children's literate knowledge and understandings is one of the most controversial issues in early childhood education. Parents, teachers, administrators, researchers, and policy makers often engage in impassioned debates about the purposes, forms, and interpretations involved in assessment practices (Salinger, 2001). I do not wish to add to those debates. Recommended guidelines for the assessment of highly capable young children call for the use of multiple measures (National Association of Gifted Children, 2006), and so my intention here is to explicate an approach to early literacy assessment that allows teachers to document the literate knowledge, behaviors, and performances of highly capable young children within the context of an authentic reading and writing event. I describe the approach as a type of informed assessment (Johnston & Rogers, 2001), because through their participation, children reveal a great deal about their literate understandings, thus informing their teacher as to what they know and can do—as well as to what they still need to know. Informed assessment is especially useful in early childhood education, because it allows teachers to organize subsequent instructional activities so as to optimize children's literacy learning (see Chamberlain, Buchanan, & Vercimak, 2007). In this article, I argue that interactive writing (McCarrier, Pinnell, & Fountas, 2000)—an innovative approach to beginning writing instruction—can also become a powerful tool for informed assessment of children's early literacy development. I begin the paper by defining and explaining the potential of informed assessment in early literacy. Then, I describe interactive writing as an instructional approach. For each component of the lesson, I suggest various ways in which teachers can use interactive writing to document the literacy development of highly capable young children. My goal is to make a case for interactive writing as a preferred approach to both early literacy instruction and assessment.