Narrative intelligence is vital for understanding how humans comprehend experiences, build empathy, and develop language skills across disciplines such as sociology, psychology, and cognitive science. However, the intersection of Artificial Intelligence (AI) and narrative intelligence education remains comparatively under-explored. This research addresses the gap by examining how AI supports kids’ narrative construction, which is key to their cognitive and social development. Using Stable Diffusion fine-tuned with LoRA, we developed Storyfly to explore AI’s impact on upper elementary students’ narrative intelligence during real-time painting. A controlled experiment compared an experimental group using AI drawing tools with a control group receiving traditional narrative instruction. Results show that Storyfly enables students to create AI-generated images and triggers their narrative intelligence in macro-structure building, though it does not yet support continuous narrative structures.