Prepare your manuscript and your illustrations separately. Most picture book publishers have different departments that handle story manuscript and illustration submissions. You will want your manuscript and illustrations kept separate, but you will want to prepare a mock-up of what the two might look like combined. The mock-up doesn't have to be more than a folded booklet with the illustrations in place.
Consult either the "Children's Writer's & Illustrator's Market" or the free online "Directory of Children's Writers" for appropriate markets (see Resources). These market listings are invaluable for helping you find an appropriate publisher for your picture book. Choose a couple of publishers from the listing that seem suitable for your picture book. The guidelines will tell you exactly how to submit your manuscript and illustrations, who to submit to, where to send the submission, how much you will be paid if your work is accepted, and when you will be paid. Follow the submission guidelines to the letter.
Include a query letter with your manuscript and illustration package. Keep it brief. State who you are, any publishing credits you have, and a little about the manuscript you're submitting for the publisher's consideration. Close the letter by thanking the publisher for his time and letting him know you look forward to his response. Better yet, be confident and close by letting her know you look forward to working with her.
Wait at least a week beyond the time stated in the submission guidelines before you follow up on the status of your manuscript. If you have a phone number, you can put in a call after the wait period and inquire as to the status of your manuscript. Postal or email is an acceptable method of follow up when no phone number is available.
Submit your manuscript elsewhere when a publisher rejects you. Rejection happens, but success in the publishing field only happens when you continue to market your work. This means submitting work on a regular basis and starting a new project while you wait.