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Telling prosocial lies, or lies to be polite or spare a social partner’s feelings, is an important social tool in many cultures (DePaulo et. al, 1996). Children’s ability to tell prosocial lies emerges as early as 3- to 5-years-old, but they are not consistent in their tendency or ability to prosocially lie until much later in childhood (e.g., Lavoie et al., 2017; Talwar et al., 2019). Although this developmental shift is well-characterized, it is unclear what cognitive mechanisms may be driving children’s increasingly sophisticated prosocial lying. The present study explored two possibilities: (1) Children are learning that, when given the opportunity to tell a polite lie, they should always do so or (2) Children are learning to pay attention to specific contextual cues to understand whether their social partner needs, or wants, the truth or a polite lie. To disambiguate these possible developmental mechanisms, we asked 4- to 10-year-old children (N = 23, Mage = 7.5 years) to respond to two social scenarios in which it would be appropriate to tell a prosocial lie: (1) receiving an undesirable prize (disappointing gift) and (2) evaluating someone else’s objectively poor-quality drawing (drawing; adapted from Warneken & Orlins, 2015). The scenarios were presented within-subjects. In both scenarios, children were asked to place the target item (gift, drawing) in a good box or bad box and to provide a numerical rating of the item on a 1-5 scale (with higher scores indicating better quality). Pilot evaluations indicated that children in this age group consistently categorized both target items as bad and gave them low ratings, so lying was operationalized as children categorizing the items as good or giving them a high numerical rating. Results indicated that there was a significant difference in children’s likelihood of lying between the disappointing gift and the drawing scenarios. Regardless of age, children were more likely to place the target item in the good box (drawing = 55% lied, gift = 14% lied; OR = 0.17, p = .046) and provided higher ratings in the drawing scenario than in the gift scenario (drawing ratings: M = 3.22, SD = 1.17, gift ratings: M = 2.14, SD = 1.17; F(1, 40) = 8.95, p = .005). Thus, 4- to 10-year-old children were less likely to lie in the disappointing gift scenario than in the drawing scenario in both outcome measures. This difference in responses between scenarios suggests that children are not applying an overall heuristic to lie in all social situations where lying would be acceptable. Instead, children may be weighing multiple factors when determining their responses to these social situations, including whether they could potentially gain from telling the truth (i.e., saying that they do not like a prize may result in receiving a different prize). Although we cannot identify the exact mechanism leading to the differences between situations in the present study, we will discuss how our findings can shape future studies investigating the developmental processes underlying prosocial lying.