Rachel Swirsky, like Kelly Link, remembers Goodnight Moon. Maybe it was the background painting of the bunny catching a merbunny with carrot-bait that turned them into such magnificent writers of unrealisms.
Rachel also remembers Merilee Heyer’s The Forbidden Door and Audrey Wood’s King Bidgood’s in the Bathtub. Both books are richly illustrated. Here’s a video clip of someone reading King Bidgood, and they do the voices. Here’s Marilee Heyer’s website, where you can marvel at her art.