Education is a moral enterprise. Character building of students is the pivotal goal of education all over the world. It has ever been a hot issue either religion should be included the syllabi or secular values are enough for the moral development of young children. During the recent years, syllabus for Islamyat in schools and Madaris of Pakistan has also come under objection and revision. However, no research on relationship of moral development and religion has come to light in Pakistan. For the reason, a study was conducted to find the, “Effect of religious education on the moral development of children.” It was a causal comparative ex post facto study with a 3x3 factorial design. The stratified sample comprised 1350 children of 4-15 years from public schools, Madaris and uneducated from urban and rural areas of Lahore. The researcher developed a tool MDII (Moral Development Interview inventory) herself. Its validity and reliability were determined statistically. The data was analysed by ANOVA and T-test for independent sample. It was found that there was a substantial increase in the moral development of children during every age stage. Religious education has also significant positive effect on the moral development of children because the uneducated children showed the least moral development. The children from 7-11 (childhood) from schools and Madaris showed equal performance and the children in early childhood of Madaris indicated no significant difference with uneducated children. It was concluded that Hifz students were not provided with illustrative moral content so they lagged behind in moral concepts. The adolescents studying translation of the Quran and Hadith showed the highest stage of moral development. It was suggested that Madaris should introduce translation of the Quran and comprehensible subject matter of religion for young students also.