One of the children had picked up the grenade from a drain at Seema road near Pir Panchal hotel in Rajouri town, police said.
While playing with it, one of them hit the grenade at a stone resulting in the blast late this afternoon, police said.
Garo Singh was killed and two others, Rohit and Kapil, aged between 8 to 10 years, were injured, they said.
They were rushed to a nearby hospital.