Toy blocks with internally disposed magnets, and methods of making same. Pockets for the magnets are machined into a non-extrudable material such as wood. Strong permanent magnets are disposed in the pockets to cause the faces of the block to exhibit a desired polarity magnetic field. The pockets are then sealed to permanently retain the magnets. The exterior shape of the block may be formed either prior to or subsequent to machining and sealing of the pockets.