Disneyland - Allen,TX

Princess breakfast will be perfect for them. Two is a tough age because they just want to run around, but it's doable. My son and DIL took my granddaughter to Disney at 13 months. She loved everything about it. She was not walking yet.
So their plan was to go back when baby is a year and she was 2 1/2. I just smiled and thought they are nuts. After a weekend at Hershey Park they had a change of heart lol. At 2 they don't understand getting in ride and then OFF. She just wanted to be out of stroller. Second day she was better about it but it did make them rethink Disney.

I am sure you will enjoy your trip keep expectations to a minimum and just go with the flow. January is a great time to go.
Can't help on hotels. I do know there are several good ones close by.
Have a magical trip.

We stay at the Hotel Annabella. The rooms are very nice and clean, it's reasonably priced, and it's a 10 minute walk to the parks. You can even get better deals for them on hotels.com. I think we paid $100/night for a mini-suite.

The princess breakfast at Ariel's Grotto is great. 5 princesses visit your table while you're eating. They serve family-style: scrambled eggs, pastries, waffles, bacon and sausage, and you can ask for more, if needed. Since you're youngest is only 2, you won't even be charged for him/her. It's located in California Adventure, but you get in early if you have breakfast reservations, so I'd time it so you are done right as or shortly after the park opens to maximize that benefit.

We usually book through Get Away Today (www.getawaytoday.com). They have clean, inexpensive hotels in walking distance to the parks. That's a big deal for us. We have friends who stay at cheaper (and sometimes fancier) places farther away and take a shuttle, but for us, being in walking distance is the best way to go. No parking or shuttle costs, and it's easier to take tired, cranky kids back to the room at night.

I recommend doing the princess meal for lunch. Breakfast is really crowded, and so is dinner, but lunch gives you the same experience with fewer people. We just did lunch with our whole group of 9, including a 3 year old, and it was great! :) They get a private moment with each princess - bring cameras!

We stay at the Disney Grand when we go... yes it's more expensive but with that said you are steps away from the park AND you also get in one hour before the public is let in. Get in line early because it gets backed up. Everything about the hotel is amazing... The princess breakfast would be perfect :) We also buy tickets for D-land one day then California adventure the next day(we don't do pass hoppers) it takes up to much time going back & forth. https://disneyland.disney.go.com/hotels/grand-californian.... Visit Studio 365 in Downtown Disney... she will flip out https://www.youtube.com/watch?v=AEeUZpjLoSM

If budget is not an issue, I would stay at Disney's Grand Californian Hotel. It's connected to downtown disney and California Adventure so only minimal walking is required, which I think is helpful when you have younger children.

We have stayed at the Embassy Suites several times. They serve a great breakfast that is included with the price of the room.

We caught the shuttle bus right outside the hotel to get to the parks.

They will LOVE any character meal!! Each character comes to your table so you can take pictures, it's great.

Have fun!

M

We went to Disney when our two were 5 and 2 and had a great time! I was actually really surprised how great our 2 year old did. I thought he might be a bit too young, but he had a blast! It was so fun watching him enjoy everything, even though I know he won't remember it...I will!
There is a whole strip of hotels along the street right outside Disney. Most of these are "good neighbor" hotels that will also get you in the park early. We stayed at the Camelot- it was fine. Not great, but pretty inexpensive, very convenient to the park, and clean. We spent very little time in the hotel, so I was glad we did not waste our budget there.
We didn't do the princess breakfast, but we did do three other character meals and they were all great!!! Definitely the way to see characters.

When I was down there on business one time, I stayed at the Hyatt. They put me in one of the "kids' suites," and it was fantastic. It's a 2-bedroom suite, one of which has bunk beds. It was really very nice, and the whole hotel was set up nicely for families, I thought.

We have stayed at the Disneyland Hotel in the past as a family, and I would certainly NOT recommend that. The prices were beyond outrageous, the room mediocre, and the service lackluster. The only high point was the pool. But in January, that's not going to be the biggest draw for your kids anyway.