In my teaching adventures, I have witnessed and heard stories of instructors that underestimate the learning capabilities of two year-olds (sometimes, even three and four-year olds). The nay Sayers defend themselves by stating that these children are incapable of constructive learning—the children are too young and too incognizant.
(On a side note, I started dancing when I was two years old, and, although I have the gift of a remarkable memory, the experience is so amazingly vivid. It truly instilled and established my love for dance.)
The reality is that children will live up to your expectations, and your teaching style must be tailored to their individual needs. A two-year old class should include material that is developmentally appropriate, but I can assure you that they can accomplish much more than just “playing around”. When you are training productive students, even at a young age, parents are impressed and appreciative because their children are learning skills that will benefit them their entire lives. And, when you believe in students, especially at a young age, they will grow and progress at a faster pace because you have instilled an understanding of mutual respect. Does it take a little more creativity and patience? Of course it does. In the end, it will be worth it because you will be growing your studio base and creating a culture that draws people to you.