all the Robert Munsch books.
They are fantastic for kids..he is my favorite kids author..

A few of my favorites are..Love You Forever/Robert Munsch, Little Golden Book..Where Did the Baby Go/Shiela Hayes (from 1974-78, out of print, hard to find), Goodnight Moon, Dean's Mother Goose and my 4 year old grandson loves the Mercer Mayer books, Just me and Grandma... Grandma,Grandpa & Me..Just Me In The Tub... Bye-Bye, Mom & Dad and some other book called ..It's Your Cloud. I always loved reading to my kids (30,28 & 19 now) and now my grandson. When I used to read to my oldest I would leave off the end of the sentence or the next line and he would fill it in , in the Dean's Mother Goose book. Very nice memories

on the day you were born
authors to look for:
rosemary wells (mac duff, max and ****), helen ketterman
wheels on the bus
good night gorilla
fancy nancy
olivia
olive the other reindeer
linnea
mike the steam shovel
spot
the monster at the end of this book
madeline
5 little monkeys jumping on the bed
any and all by eric carle
chicka chicka boom boom and others by bill martin
angelina ballerina (etc)
stella luna

Llama Llama Red Pajamas. The rhymes are great (LLama Llama stop all this drama!)and the stories are very appealing, even adults won't mind reading them more than once.

If you want to make things for the GD you could make a cloth book. Always good for a little one and introduces them to the love of books early. Let her play with inexpensive books so she doesn't get turned off by "no, no be careful of the books" but will look forward to a book being given to her.
You could also make soft dolls or doll clothes or doll quilts (if the others don't :) )
As to books, I still like all the old classics. I think many/most of them are timeless. When my GD got old enough I started her on the Little House on the Prairie series and she loves them and they really got her into reading big time. She's 12 now and reads everything.
"Blueberries for Sal" is a great book. Of course, I'm particular to it as she is a "Sara" who is called Sal and I'm a Sara who is called Sally. I first read it when I got my first library card at age 7 and I think the librarian recommended it because of the name similarity. I remember it to this day.

"Harold and his Purple" crayon was my favorite as a little girl. Shel Silverstein, "Where the Sidewalk Ends" was a favorite bedtime book for my girls

This is going to sound very odd, but here goes:

We got married in '81, and my husband's grandmother died 6 mos later. He was very close to her and one of the things we got was one of her cookbooks "The Cookie Book" I found out from someone, maybe someone here? that it was from the 60's. My little boy, when he chose a book at night to be read from at night, ALWAYS chose The Cookie Book! I'd just go through it with him sitting at my side in the rocking chair, him sucking his thumb. Each page had a row of cookie pictures at the bottom, with its name, and I pointed to the pictures and said the name.
He LOVED this book, and before I got to the middle of it, he was asleep. What a neat thing to fall asleep to, cookies on the brain.

I say give the baby a cookie book!

(I have the book put away, to be given to him and his bride when they get married. I plan ahead, he doesn't even have a steady girlfriend!)

Well, I am a first grade teacher, which is a cover for being able to read children's literature. There have already been so many great suggestions so I will tell you about my best personal book journey.

When I first got pregnant I started collecting fabulous Christmas stories. You need to understand that excellent illustrations are a must for me, they need to be artwork of their own. I collected Christmas stories for ever day in December and they became our advent calendar. The kids took turns choosing a story at bedtime. Of course the story on the 24th was The Night Before Christmas.

5 Little Monkeys Jumping on the Bed

I have that book too!! It's a Betty Crocker book, and mine is SO worn - the cover has fallen off and there are cookie dough stains all throughout the book! I inherited mine from my mother. LOVE that book!