M.,
I could only laugh when I read your query. In the long range of things, this is pretty funny - and classic three-year-old logic.
At the same age, my son asked me one fine morning if we could buy a doggie and a baby. At that, I figured it was time for sex education lesson #1. My friend was pregnant at the time, and was gracious enough to serve as an example of where babies come from. We explained to our son that babies came from Mommy without giving him a lot of detail, and that satisfied him at that time. The suggestions made by the other moms are really great, especially the ones about the seeds.
A couple of years later, we were able to get the doggie. (The baby never materialized, unfortunately). Actually, we got two dogs. And our observant then-five-year-old got a bona fide sex education lesson by watching the interaction of the male dog and female dog, and then by helping with the resulting birth and nurture of the puppies. This served as a really good foundation for sex education. I would recommend that sort of education highly.
If you lack exemplar dogs and friends, there is a wealth of information in your public library. Let some books written for his age and maturity level help you out. Screen them first, of course.
And, of course, be sure that he knows that you and your husband love each other, and that you love him and the one that is coming. (In other words, persuade him that you don't eat babies.)
Good luck!