What you describe is quite common for 3-year-olds. Kids this age don't fully understand the difference between reality and fantasy, and one important way young children make sense of the world is through their imagination. The first step is to understand what the tall tale means to him by being curious and avoiding judgment. Using a negative, accusatory tone during your discussion could cause him to shut down and not share his thoughts and feelings. If your child makes up a story about running away from school because of a nasty teacher, you might say, "Wow! You ran away from school because you felt your teacher was being mean. What did she do that was so mean?" When he responds, validate whatever feelings he shares. For example: "That made you really upset. Did you want to get away from the person who made you feel bad?" Understanding what motivated your son to make up the story will help you respond appropriately.
Keep in mind that discussing his story doesn't mean you're condoning his behavior. In fact, when children use their imagination to explore different behaviors, they're less likely to act them out in real life. So the more you help your son express himself through his imagination, the better. Ask him what he thinks he could do when he's feeling upset. Brainstorm together some ideas for how he can express his emotions, such as telling the teacher what's bothering him.
If it turns out that your child continues to tell stories that have a similar theme, it is important to check it out. In this case, you might call the teacher to ask how things are going in the classroom. Tell her about the feelings your son is expressing, and you may get some important information. For example, maybe your son is interpreting the teacher's way of enforcing rules or the way she talks in a serious tone as being "mean." She needs to know how your son is feeling so you can work together to resolve the issue.
Originally published in American Baby magazine, February 2007.