Sit down with your kids and talk to them about what is appropriate and acceptable in terms of online behavior, as well as what isn't. Then see how well they absorb the information. Educate them so they can be prepared for different eventualities, like if strangers send them unsolicited friend requests, or if peers ridicule them about their status updates. Explain to them that they shouldn't use Facebook to harass classmates they dislike or upload incriminating photos featuring themselves or others.
Help them set their privacy settings and make sure they know to never give out personal information online. Go into detail about all the info that includes, and see how receptive they are to those limitations. For example, uploaded photographs should be examined closely for any particulars that could lead an online predator or cyberbully to your home. More wisely, they should be left off altogether. Are your kids concerned about self-censoring themselves in these sorts of ways? The virtual world is often just as perilous as the real world, so make sure both you and your kids thoroughly understand -- and respect -- the dangers.
If you decide your family is ready to participate on Facebook, negotiate how you will continually follow your kids' online activity to ensure they're safe. They can share their passwords with you, for example, or you can perform random reviews. It's also smart to check their use of electronic devices through monitoring software, customer support and accounts of your own.
If you think they should wait until they're a little older, but they protest about not being able to have an account, there are some alternative online social networks they can enjoy that are more kid friendly (and more closely monitored by responsible adults) such as Kidzworld, Togetherville and Club Penguin. Find one that's a good fit and stay current when it comes to what your kids are doing online.