There is a huge variety of literature that incorporates rhyming into its story.  Below are a few highlighted rhyming books to read aloud and suggested projects to do with kids. 

Sheep in a Jeep by Nancy Shaw

After reading this book aloud, have kids begin to think of words that rhyme with sheep and jeep.  Choose one child to be a sheep driving an imaginary jeep and move to an empty area of the classroom.  Ask the other children to orally give rhyming word: if correct, they may pretend to be a sheep and join the driver in the jeep.  Continue until all "sheep" have been added to the jeep. 

The Cat in the Hat by Dr. Seuss

Read this wonderful book aloud. During subsequent readings, allow the children to predict and finish the rhyming sentences aloud.  Have children cut pre-traced cat hats out of white paper. Glue on several pre-cut red strips for the stripes.  Together, write cat on first stripe and brainstorm words that rhyme with cat, writing on alternating stripes.  Enlarge and cut out a photocopy of the cat; glue hat on head.  Kids can practice reading the rhyming words from this art project.

The Popcorn Dragon by Jane Thayer

Although this is not a book written in rhyme, it provides a great way to learn about rhyming words and word families.  Read the book aloud.  Discuss the word popcorn, questioning the children as to why it is called popcorn (the children should arrive at the conclusion that the corn makes a popping sound when heated; hence, the word popcorn).  Using an air popper, make popcorn for the class while the children are watching.  As the kernels pop, have them brainstorm words that rhyme with pop and corn.  Eat the popcorn as a treat.  To incorporate writing and art, precut bowls and white kernels of corn.  Glue bowls on background paper. Have the children write pop on the bowl and rhyming words on each popcorn kernel.  Glue inside the bowl to create a bowl full of popcorn.  Practice reading words.  

Down by the Bay by Raffi

Singing and reading this song helps the children understand the concept of rhyme and provides the opportunity for the children to make up additional verses in rhyme.  Read the book and discuss the rhyming pairs of words.  Brainstorm a list of appropriate rhymes to finish the verse:   

Sing this song/poem with the children, providing the opportunity to rhyme their names with a nonsense "w" word:
Willoughby Walloughby woo,
An elephant sat on you
Willoughby Walloughby wee,
An elephant sat on me
Willoughby Walloughby wyssa
An elephant sat on Alyssa!

(and so on until you involve each of the children)

A great site, listing several books written in rhyme and links to a variety of activities incorporating rhyme:     http://www.geocities.com/teachingwithheart/rhymebooks.html