This study was designed to investigate the dynamic assessment of vocabulary abilities in preschool-aged children from culturally and linguistically diverse backgrounds. Using a test-teach-retest model, we compared the labeling skills of children who received direct instruction (DI), mediated learning experiences (MLE), and hybrid methods during the teaching portion of a dynamic assessment of children’s labeling skills. Children in a control group received the pre- and post-tests without an intervening teaching phase. Children in all three dynamic assessment instruction groups labeled more pictures correctly at retest compared to children in the control group who did not demonstrate labeling gains. Of greater interest, the three teaching strategies resulted in varying degrees of improvement. The labeling scores of children who received MLE and Hybrid instruction improved more from test to retest than the scores of children who received DI. Results suggest that cognitively based dynamic assessment approaches (MLE and Hybrid conditions) help children from culturally and linguistically diverse backgrounds perform at their optimum level during dynamic assessment.