I am homeschooling my 5 year old and my 3 year old this year too! Although, my 3 year old will be 4 in a few months. I bought some chalkboard paint for $10 at wallyworld and painted a chalkboard on the wall in our little office. I put our little plastic kiddy table in there and gave them each one shelf (on our bookshelves) for their school supplies. This could be done just as easily at the kitchen table. My 3 year old is basically doing everything that my 5 year old is doing, though not as well. I'm teaching them the Pledge of Allegience & they take turns holding the flag (keeps them both involved). When I teach my 5 year old her letters and numbers, I write them on the board and give her directions out loud so that my 3 year old hears them too. When she is practicing her writing, my 3 year old does too! Naturally he "draws" huge circles while my 5 year old practices writing her letter "O" smaller, but I let him do it because it's good practice. I sometimes let them practice writing letters on the board too. We do a lot of crafts, coloring, painting, etc. because they can both participate! I like to do "theme" stuff to keep my preschooler interested. Themes are great for preschoolers. For example, if my kindergartener is going to be learning about maps, land, and sea, I will do some related things: paint a cut-out of a fish using bubble wrap to make the paint look like scales (I got the bubble wrap at a dollar store!), serve blue juice and goldfish crackers for snack...you get the idea. We will physically go outside & talk about the land we see. Then we'll look at a map or globe together & my preschooler is right there with us. If my 5 year old is learning to write the letter "O" then we will also color a picture of an Octopus, Ocean, etc. I could go on and on if you want me too! Just let me know.
Basically I pretend like I'm teaching a class full of kindergarten students & my three year old happens to be one of them. I don't expect the same level of work out of him, but I reward his efforts as much as I do my 5 year old. I do plenty of prek stuff & my 5 year old participates as well.