Roverandom: J.R.R. Tolkien
Everyone knows about The Hobbit. Unless of course you're from another planet, and even then I'm not sure that's a valid excuse anymore. And most people know that The Hobbit led to The Lord of the Rings. Most of those people know about the Silmarillion, but then the numbers start dropping of quickly. You ask them about The Unfinished Tales, and The Book of Lost Tales I and II, and they start fading into the woodwork. Farmer Giles of Ham and The Smith of Wooten Major (both wonderful children stories) are definately way out there -- and now comes this little tome -- Roverandom.
This is the story of a small dog named Rover (and of course subsequently renamed Roverandom), and how he manages to get from a grandmother to her grandson by a very convoluted route. Poor little Rover gets turned into a toy dog after biting a hole in the pants of a passing sorcerer named Artaxerxes, and that's where his adventures begin. He gets taken to a toy store, purchased by a woman for her son, then he gets lost on a beach. There he meets another wizard who turns him back into a dog, but still toy sized. He sends Rover to the Man on the Moon for safe keeping, where Rover meets another older Rover, so he becomes Roverandom. There he gets a set of wings, plays with moon beams, has a close brush with a White Dragon, and meets a little boy in the garden of dreams. He returns to Earth, then has to go to the bottom of the sea, because Artaxerxes has married a daughter of the Mer-King, and only Artexerxes can make him properly sized again. So poor litte Rover gets turned into a Mer-dog, and frollicks on the ocean floor with another mer-dog named (you guessed it, Rover). They swim around, go exploring with a whale, play tricks on Artaxerxes, and meet up with a huge sea-serpent. Eventually Roverandom, Artaxerxes, and his Mermaid wife return to land, where Roverandom is restored to full size, and to his rightful owners.
The story is cute (as kids stories go) and almost short enough to tell in one sitting -- I think you and the kids would like it. You also might want to read Farmer Giles of Ham and The Smith of Wooten Major. They too are short, and delightful little stories that young and old should appreciate.