As digital devices become part of everyday life, young children experience new play opportunities (O'Mara & Laidlaw, 2011). Recent research has examined these new practices in homes and educational settings. However, missing from this research, is an understanding of the psychological content of children's digital play. In drawing upon Hedegaard's (2012, 2014) cultural-historical model of child development, this paper presents a study of children's participation in preschool activity settings where digital technologies were used, and where new technologies create new conditions for development. Findings show that digital play offered: new ways of presenting imaginary situations; the use of digital placeholder and virtual pivots for new action; doubleness of thinking in meta-imaginary play situations when digitally skipping in and out of play; and during investigations with digital devices, where the development of new conceptual thinking previously not possible in play, such as magnification, could happen. Through Hedegaard's model of child development and her concept of activity setting, the findings make a contribution to understanding how digital tools psychologically support children's development.