I taught my 4 year old dd her letter sounds, and now she has started saying d-a-d, dad, m-u-m, mum, c-a-t, cat etc. In the bath last night my 6 year old ds wrote h-a-t on the bath in foam letters and she worked out it said hat. I am feeling excited and wondered where to go from here without putting her off. My ds learnt to read after he started school so was about a year older, by me reading him books then him reading the book to me from memory.
This is what we did: Read loads and loads of books, fiction, non fiction, also sing, read signs, leaflets anything. Don't worry too much about 'learning to read' leave that to school. Have loads of books in house (by loads I mean we visit library and borrow 10 at at time, we buy from charity shops and get magazines every week) then take it from their own interest. put up an alphabet frieze. etc etc
you probably already do it, but play eye spy, using 2,3 letter word beginnings, eg ch for chair, st for star, str for string etc. then you could try playing rhyming eye spy, eg i spy something that rhymes with bear - chair, wall - ball. i agree with notime, don't worry too much about the 'reading' bit, but raise her awareness of rhyme, rhythm, and pattern/repetition of langauge. re-read lots of her favourite books so she begins to memorise them and then eventually she'll be able to 'read' them to you. ask her to find the most 'important' words on a page that are repeated, eg goldilocks or bears, porridge etc.
If you want more ideas for things to do with your child to help her recognise sounds in words, blend sounds to make words and have fun with rhyming words, you can find some other simple games to play on my site childrens-books-and-reading.com. By playing these games you build your childs phonological awareness (ie her awareness of sounds in words) which will eventually help her to read and spell.