Once your Chao is an adult, it becomes fertile; this means it can mate with other adult Chao to produce a new egg. However, adult Chao can not mate at all times. In order to mate, the adult Chao must be in its mating season.
Please note that Chaos Chao and Character Chao can never mate. This is because they are immortal, and have no need to reproduce. For this reason, you should think very carefully before creating a Chaos Chao; only do so if you are sure you won't want to breed it.
The natural mating season occurs after the Chao is approximately two years old, or three to five hours after it evolves. You will be able to tell when your Chao is in its mating season, as it will sit down on the ground and a ring of beautiful flowers will bloom around it. This means that it is ready and willing to mate.
If you do not want to wait for your Chao's natural mating season, then you can use a special fertility fruit instead. The Black Market sells a fruit called the Heart Fruit. If you feed this completely to your Chao, the last bite will immediately trigger your Chao's mating season! Using this fruit, you can breed your Chao as many times as you want, whenever you want.
As you'd expect, breeding requires two Chao to mate. At least one of the Chao must be in its mating season, with flowers blooming around it. The other one must at least be close to a mating season; if it isn't in the mood, then it will refuse to mate with the other Chao. If both Chao are in their mating seasons, then they will definitely be willing to mate. The easiest way to mate two Chao is to just feed them both a Heart Fruit.
It is possible for Chao to breed on their own, if you wait long enough. However, you usually have a specific pairing in mind, and therefore want to control the interaction. To specifically breed two Chao together, just pick one of them up and place it next to the other. If only one of the Chao has flowers blooming around it, then you must pick the other one up and place it in the ring of flowers. If both Chao are willing, they will then mate.
A small ritual takes place when two Chao mate. Special music will play, and the two Chao will nuzzle each other and dance around on the flowers. After a few seconds, a brand new egg will appear between the two Chao. Congratulations! After creating a new egg, the two Chao will lose any interest in mating further. If you want to breed them again, then you will need to use Heart Fruits, or wait a very long time for another natural mating season.
The new egg will contain a new Chao, the offspring of the two parents. It will have a combination of traits from both of its parents. To best understand how this works, you should have already read the Genetics page.
Just like its parents, the new Chao will have two pieces of genetic information (alleles) for each of their attributes (genes): one of these will be dominant, and will determine the Chao's appearance and abilities; whilst the other will be recessive, carried by the Chao with no effect at all except when it grows up and breeds. So where does this genetic information come from? From the parents, of course!
Each parent has two alleles for each gene. One allele is chosen at random from each parent and given to the child. This means that the child always inherits one allele per gene from each parent. The following diagram helps to illustrate this concept.
For example, one parent might be pure with two "two-tone" alleles, and the other parent might have one "two-tone" allele and one "mono-tone" allele. There are then two possible options for the new Chao: there is a 50% chance that the child will be a pure two-tone, with two "two-tone" alleles; and there is a 50% chance that the child will have one "two-tone" allele and one "mono-tone" allele.
Stat grades work differently to everything else in breeding, and require some more explanation. As you know, you can increase your Chao's stat grades through a cycle of evolving and reincarnating. However, none of this changes its initial stat grade genes, stored in the Chao's DNA, permanent and unchanging.
When it comes to stat grades, the child's genetic information can be picked out from either the parents current grades or genetic grades! This means that there are a total of six options for each stat grade.
For example, one parent might have the grades D and C in its DNA for the Run stat, but a current grade of A; the other parent might have grades E and C in its DNA for the Run stat, and a current grade of C. The child Chao could then end up with any of these grades in its own DNA! There are then six possible options for the child: a 2/9 (22.2%) chance of having D and C alleles; a 2/9 (22.2%) chance of having C and C alleles; a 2/9 (22.2%) chance of having A and C alleles; a 1/9 (11.1%) chance of having D and E alleles; a 1/9 (11.1%) chance of having C and E alleles; and a 1/9 (11.1%) chance of having A and E alleles.