Normally, children do not get far into middle-childhood without a friend or older sibling telling them that their beloved Santa Claus, Easter Bunny, or Tooth Fairy is not real and that parents are really the ones putting the presents under the tree, the candy in the basket, and the money under the pillow. Learning that these characters are fictitious can be a very distressing and jarring realization for children who have grown up with an expectation that they were real. Children who have heard the "rumor" that such characters do not exist often ask caregivers for "the truth."
Obviously, most caregivers do not want to hurt their children's feelings or make them cry (which may already be happening). It can be tempting to save children's feelings by trying to convince them that these magical characters do actually exist. However, children are bright and resourceful, and they'll eventually uncover "evidence" that supports their friends/siblings' story. Lying or misrepresenting the reality of these characters to children after children in some sense know that they are not real may cause children to doubt their caregivers' honesty about other topics in the future.
In such cases, parents and caregivers should acknowledge to children that their beloved characters are indeed not real, reflect children's feelings of loss and sadness upon learning this painful truth, and let them mourn the fact that their world is changing as they grow up. Sharing stories of how much fun it is for caregivers to surprise children with gifts and treats, or describing some close calls (e.g., "you almost woke up when I stuck that quarter under your pillow and I had to dash out of your room") can soften some of the blow. Also, enlisting the help of older siblings so as to "save the magic" for younger children who have not yet caught on can actually become a fun secret that bonds older children and parents together.
As children "graduate" into a more adult and objective but far less magical understanding of the world, parents can talk to them about what characters like Santa Claus stand for (e.g, their symbolic and cultural meanings) and explain how they can still find fun in the symbols and ritual. For example, Grandma can concede to Janey, that, no, there isn't a Santa Claus who flies all around the globe and delivers toys to every child on the planet. However, the idea of Santa Claus is wonderful as he embodies generosity and the joy of giving and so serves as an example for real people to emulate. When friends and families give gifts to each other, or when a group of people serve dinner at a homeless shelter and hand out gifts to the children there, they are celebrating the spirit of giving that Santa embodies.