To encourage a toddler trying to tell a story, we should provide positive feedback. For instance, after they finish a part of the story, say 'That was a really great part!' It gives them a sense of accomplishment. We can also offer some relevant props. If their story is about a trip to the park, bring out a small toy ball or a toy flower. These can help them visualize and expand their story. Moreover, repeating back some of the key elements they've mentioned in the story shows that we are listening carefully and it encourages them to keep going.
One way is to be patient. Toddlers might not be very fluent or clear in their storytelling. Don't interrupt them or correct their grammar right away. Another is to ask simple questions related to their story. Say, if they mention a cat in their story, ask 'What color was the cat?' This shows that you are interested in their story. We can also create a comfortable environment for them, like sitting on the floor or on a cozy couch together while they tell the story.