Two experiments examined whether 4‐month‐olds (n = 120) who were induced to assign two objects to different categories would then be able to take advantage of these contrastive categorical encodings to individuate and track the objects. In each experiment, infants first watched functional demonstrations of two tools, a masher and tongs (Experiment 1) or a marker and a knife (Experiment 2). Next, half the infants saw the two tools brought out alternately from behind a screen, which was then lowered to reveal only one of the tools (different‐objects condition); the other infants saw similar events except that the same tool was shown on either side of the screen (same‐object condition). In both experiments, infants in the different‐objects condition looked reliably longer than those in the same‐object condition, and this effect was eliminated if the demonstrations involved similar but non‐functional actions. Together, these results indicate that infants (a) were led by the functional demonstrations they observed to assign the two tools to distinct categories, (b) recruited these categorical encodings to individuate and track the tools, and hence (c) detected a violation in the different‐objects condition when the screen was lowered to reveal only one tool. Categorical information thus plays a privileged role in individuation and identity tracking from a very young age. After being induced to assign two tools to different categories, via functional as opposed to non‐functional demonstrations, 4‐month‐olds correctly individuated and tracked the tools, indicating that the privileged status of categorical information emerges early in life.