Charlie Cook’s Favorite Book by Julia Donaldson, illustrated by Axel Scheffler is a picture book for book lovers.  It is not just a story within a story, but every two pages it is another story inside another story inside another story.  Charlie Cook is reading his favorite book, Shiver Me Timbers: The Story of an Old Sea Dog.  The pirate chief in the story opens a treasure chest and finds a book, Fairy Tales from a Forgotten Island.  In that story Goldilocks is reading Sir Percy and the Dragon, and then Sir Percy has a book.  It goes on and on like that until it finally comes full circle when a headless ghost is reading a book about Charlie Cook. 
The book is silly, fun and a great way to demonstrate that lots of different people read in all kinds of settings.  It is also a nice way to introduce nested stories to children, though this book takes that to the extreme.  I don’t know that it is the best book for storytimes, but it would work with a smaller group of children in Kindergarten and first grade.  It could also serve as inspiration to have older children write their own stories within a story.