I feel like I've answered a MILLION "what to do in Williamsburg" posts- many on the Budget board and many here. This is the right place to post it!
I went to William & Mary for undergrad and grad school so I lived there for a little over 5 years, and with parents visiting we of course had to find lots of things to do! I also got free entry to all of CW and a pretty big discount for family members.
The kids will probably like CW (Colonial Williamsburg)- there's a lot to do for kids there- they have activities, hands on things and of course they love buying those little bonnets and fake guns

Most kids take to it so you should be fine.
When you're in CW on the main street- DoG street (Duke of Glouchester), there's a sandwich shop called the Cheese Shop- it will be packed but it's so worth it!! Make sure to get the house dressing- it's to die for!
I actually haven't been to Jamestown because the one time we were going to go something came up. I've heard there's a lot of hands on stuff and it is fun for kids. Most of the people who visit CW and Jamestown have kids anyway!
I LOVE Yorktown. My DBF and I still drive up there sometimes from here (Norfolk) to have dinner at the Yorktown Pub and walk around. I love the place. They have a beach there as well, and last Memorial day they opened the brand new area by the water- shops, a restaurant, a ben and Jerry's and an area with bathrooms and showers for the beach!
If you want to get part of a day away from the kids (or hey, I don't know- maybe they like to shop) there's some GREAT shopping in Williamsburg. There are the Prime Outlets that have been greatly added onto in the past two years (I worked at an outlet there for about 2 years or so) and the Williamsburg Pottery is also down the road. Although try to stay away from the Prime Outlets on the weekends- the weekdays are bad enough!!
Also the 2nd biggest Yankee Candle is on the way to the outlets too if you're into that (it doesn't compare to the Deerfield Flagship store, but is still really nice all the same).
Also I remember seeing a billboard saying that they are opening a Ripley's Believe it Or Not soon. Not sure where it will be.
You could definitely do Busch Gardens for 2 days if you've never been. DBF and I got season passes one summer and went ALL the time. It's definitely not Disney but second best in the theme park world (ok, maybe 3rd after the BG in Tampa). Water Country is a 1 day thing.
Oh and be prepared for the humidity down here!! I think it's worse than Disney (the burg is a swamp if you didn't know

).
If I think of anything else, I'll post again- also if you want to know restaurant info I could give you some good places to go/not go, but that's what I've got so far! I'm sure you'll have a blast.