Theories accounting for the development of analogical reasoning tend to emphasize either the centrality of relational knowledge accretion or changes in information processing capability. Simulations in LISA (Hummel & Holyoak, 1997, 2003), a neurally inspired computer model of analogical reasoning, allow us to explore how these factors may collaboratively contribute to the development of analogy in young children. Simulations explain systematic variations in United States and Hong Kong children’s performance on analogies between familiar scenes (Richland, Morrison & Holyoak, 2006; Richland, Chang, Morrison & Au, 2010). Specifically, changes in inhibition levels in the model’s working-memory system explain the developmental progression in US children’s ability to handle increases in relational complexity and distraction from object similarity during analogical reasoning. In contrast, changes in how relations are represented in the model best capture cross-cultural differences in performance between children of the same ages (3–4 years) in the United States and Hong Kong. We use these results and simulations to argue that the development of analogical reasoning in children may best be conceptualized as an equilibrium between knowledge accretion and the maturation of information processing capability.