According to the Daily Express the book, called Can I Tell You About Gender Diversity?, was made by the Educate and Celebrate organisation which received £200,000 of taxpayer's money. It's due to be rolled out in the near future.
The book says: "Using such language as 'boys and girls' or 'ladies and gents' is not only exclusionary to trans-identified and gender variant young people but subtly reinforces that gender is a significant difference about behaviour patterns."
It also has a story of a 12-year-old boy called Kit "transitioning" from male to female, with the help of prescribed drugs.
The aim of the book is to help teachers, children and parents better understand medical gender change.
Ann Widdecombe told the Express: "At the age of seven, you know if someone is a boy or if they are a girl. It's normal.
"It's like they're trying to do away with one of the basic pieces of childhood understanding.
"All I can say is that it's so dotty you'd think it was made up but for the fact that it's paid for by the taxpayer."
The Bishop of Chester, Rt Rev Peter Forster, said: "This is likely to sow more confusion than clarity."
A Department for Education spokesperson said: "We are committed to ensuring that everyone is given the same opportunity to succeed – schools should be inclusive environments where every child feels supported to fulfil their full potential."
