We co-slept with my oldest until she was around 2, when for her birthday, she got a "big girl bed." I was pregnant with my second, and I was worried about getting kicked all throughout the pregnancy, so it was a good time to transition. It was a twin-sized "princess bed," just a few steps away from ours (our room is big enough to fit both beds), and we transitioned her slowly into it.
When she was around 5, we told her that if she slept in the big bed in -her- room for one month, we'd let her decorate the room however she wanted. High School Musical was her decor of choice, little sister graduated to the "princess bed," and a couple of years later we invested in a set of bunk beds. Though they don't share bathroom space very well, they've made for pretty good roommates.
Best wishes and good nights' sleep!
M.