We love the Knuffle Bunny books or anything by Mo Willems. Also the Llama Llama books (Mad at Mama, etc.) The Little Critter books by Mercer Mayer are perfect for little boys, and make a good transition for early reading skills.
If you want to beef up his collection, check out cbomc.com (Childrens' Book of the Month Club). That's where I get almost all of our books, and they have really good sales. They also offer recommendations based on your child's age and what authors or subjects they like.
I started reading my son chapter books about 4.5 years old. I've used a lot of books my mom had left from when I read them to myself about 2nd or 3rd grade. The Boxcar Children are short, kid-friendly mysteries, that aren't too suspenseful. I don't know if they are still sold anywhere. We read some of the Magic Tree House books, but some of them were a little scary, so you may want to skim them yourself first. We just read Castle in the Attic, and I'm thinking about reading the Indian in the Cupboard books to him next. I try to stick to one chapter a night, but sometimes he will beg for an extra chapter and I can get him to do a chore in exchange!