Recent research employing habituation-novelty and violation of expectancy techniques has revealed what appear to be impressive perceptual and cognitive capacities in neonates and young infants. However, there is controversy over the appropriate interpretation of these findings, some arguing that quite young infants have the capacity to reason about events on the basis of innate core knowledge, whereas others claim that relatively simple perceptual, intentional and memory processes are at the root of these effects. Additionally, more traditional measures of cognitive ability, based on manual search suggest relatively late emergence of object knowledge. The argument developed in this paper is that early awareness of the world is quite basic, involving possibly no more than detection of events that have a structure that differs from the event structures to which innate aspects of the perceptual system are adapted. Action is initially guided by functional knowledge arising from trial and error exploration rather than by this relatively undifferentiated awareness of the higher level physical structure of the world. In itself, however, action serves to refine perceptual awareness, and eventually becomes linked directly to physical knowledge. It is suggested that this developmental process may be usefully understood within the framework of the implicit-explicit knowledge distinction.