Learning early can only help the child. I say tell them. Explain it. Get a helpful book. Answer any further questions they have. Get over your own hangups about sex if you have any while you are at it.
Lie to them and tell them some sort of fairy tale or anything else non-sensical.
Tell it to them straight, and shatter the tiny, protected world they've been living in.
Run away screaming.
Learning early can only help the child. I say tell them. Explain it. Get a helpful book. Answer any further questions they have. Get over your own hangups about sex if you have any while you are at it.