American Girl started in 1986 with a line of historical character dolls, all hailing from different races and nationalities. Each 'girl' was nine-years-old and lived in a different era of American history. They were 18" dolls that came with a storybook (and, later, a line of storybooks) telling stories about our country's history and that girl's place in it. The dolls were such a big hit (despite their outrageous price tag at over $100 per doll), that in 1995 the company expanded their doll collection and included accessories. Mattel bought the company in 1998.
I admit, I was a bit skeptical of these dolls for several reasons, one being their pricetag was so high, but after Lucy got Julie, a girl growing up in San Francisco in the 1970s with divorced hippie parents, I changed my mind. We have now read all seven books in Julie's collection and I like reading them with Lucy. The books share some of the history of the time period and got Lucy interested in what was happening then, so much so that we ended up researching more about political movements and women's rights. Also, the 'girls' often overcome some sort of adversity in a positive way, which is always a good lesson for our daughters to hear.
Alice recently got a Bitty Baby, American Girl's line of baby dolls for 3-6 year olds. While cute, they aren't really that interesting, as they don't come with a name or a specific story. I didn't purchase either of these dolls or their expensive accompanying accessories (Grandma did). The dolls are standard 18" dolls, though, so you can easily find less expensive clothing at thrift stores, craft fairs, and places like Target. We've made some fun 'bedrooms' for the dolls with stuff we already have, and I made a great haul of 1970s bellbottoms and praire-style dresses for Julie at an antique shop in Idaho Falls recently. The accompanying American Girl books and movies are all available at our local library and are pretty well done, in my opinion. It's been fun to explore American history with Lucy this way, through dolls and play, something she can relate to.