Same thing happend with my niece, who is 5. I spoke to a child psychologist (a collegue of mine) and she gave the following advice:
First, have a talk about lying. Ask the child if he understands what a lie is (saying something that isn't true, not telling the truth about something, telling "stories"). Then tell him very plainly that lying is wrong, and that it wont be tollerated. If you want, you can go into examples of how lying is hurtful and harmful. Mostly you just want to communicate that lying is wrong. Then, when he lies, immediately call him out on it. State very plainly and with authority "That is not true. You know it's not true. Lying is not okay, and I will not put up with it." If the lie is something little (my niece told me that she and her grandparents had won a trip to Las Vegas with a Sonic straw--why in the world would she say that?! Then she told me not to ask them about it b/c it's a secret. So she KNEW she was storying, and she was trying to cover her butt!) just say something like "I know that would be cool if that happened, but it didn't really happen, and you shouldn't tell stories. That's the same as lying" If he insists he's telling the truth, just nip it in the bud with "No, that is a lie, and you know it. I don't want to hear another word about it" and leave it at that. If it is a bigger lie (No, mommy, I didn't do that---and you know he did) tell him that he knows how you feel about lying. Then punish him (have him sit in a chair in a quiet, boring room) and tell him he will continue with the punishment until he tells you the truth and appologizes for what he did, and for lying about it. When he appologizes, accept the appology, be loving, and thank him for being honest. But I would also deny a privilage for the rest of the day, to show that he can't just get out of being in trouble by fessing up. The idea is to prevent further lying. Keep one thing in mind: kids live in a fantasy land a lot of the time, especially if something in their lives is out of whack, disrupted, or stressful. And they don't always differentiate fantasy from reality. Also, they aren't proficient and self-expression, and have a limited grasp of language, so what may seem like a lie is sometimes an inability to convey an accurate message. For example, my niece told me that she wanted gold teeth. I asked her why, and she said a bunch of kids at her school had gold teeth and it wasn't fair. Of course, I said, "That's not true. I have seen the kids at your school, and none of them have gold teeth." She insisted. Later, she saw my husband laughing, and said, "See! Uncle Barrett has gold teeth!" She was talking about his FILLINGS!!! So I felt like an a**. Anyhoo, hope that helps. Good luck. It's honestly probably just a phase. Kids are kooky.
:) Jen