It is important to break the news in an age appropriate way. Take into consideration the age of our child and how much they need to hear before telling them the difficult news. Make sure that you are honest about what really happened, don't use phrases such as the pet "went to sleep", as children can interpret it literally. It is okay to use the words "death" and "dying".
Incorporate your own understanding and belief about death to provide more comfort and closure. It's also okay to be honest and say that death is a mystery or that you don't know the answer to their questions.
Help your child cope with their emotions by talking to them about it when they are ready. Help them to understand that it is natural to feel the emotions they are having. Showing your own grief from the loss of the pet can also help your child understand that it is okay to feel sad and discuss emotions, and that they aren't the only ones grieving.
Help your child move on from the grief by helping them remember their pet in a positive light, such as sharing funny moments or project to remember them by. Most importantly help them know that the grief and pain will eventually fade.
Information from this post was taken from: http://kidshealth.org/parent/emotions/feelings/pet_death.html