My wife and I had our first child 6 years ago, and 18 months after that we had our second (and last) child. The second child was unexpected, but at the time and looking back, it was great to get the early years started and in sync. Come college time I may feel differently about that : )
Prior to having children my wife and I had both worked full-time and made good salaries, and we had a pretty low mortgage, but with about $40k in student loan debt, $25k in car loans, and some credit card debt.
After having our first child, my wife decided that she couldn't do the daycare thing. At the time I thought we were in for financial ruin, but I supported her decision and told her I would make it work (my wife doesn't really pay any mind to the finances...).
It was at that time that, for the first time in our lives, we learned how to live frugally. And it was hard for the first couple of years. We were used to eating out 3+ times a week. Spending whatever we wanted, when we wanted (but fortunately never on high-priced items...it was always lower-cost stuff but lots of it).
While my philosophy on personal finance differs greatly from JD and many of the folks on this forum in regards to reasons to be frugal, and housing, etc. There is a cold, hard difference between being frugal because you have to to survive, and being frugal because you want to be a millionaire when you retire.
So my goal was to NOT get us into any more debt and keep us above water for a few years until my wife went back to work. Mind you, she was making the same salary as me, so we lost 50% of our income pretty much unexpectedly even though it was a choice.
That was 6 years ago. The first 2 years we never ate out, never spent much on anything 'discretionary', and I 'hustled' for side-money every chance I got. I taught myself web development (I did some at my day job already so it wasn't difficult to learn more advanced skills on my own) and started my own web development side-business which started earning me spending money. Prior to that, I was always responding to craigslist ads of all kinds...stuff like 'help me move and I'll give you $50!' - it was demeaning, and sometimes back-breaking work. I hated it. Here I am sweating my tail off working weekends for low wages, from a 19 year old kid with rich parents who is too lazy to move his own furniture. The worst was when I scored a job working weekend nights as a 'roadie'/'guitar tech' for a local heavy metal cover band. I'm a bald guy making $70k per year at the time, but at night, from 8pm to 3am, I'm a 'roadie' for a horrible heavy-metal band that played dive bars. These guys were like spinal tap but without the talent, the fans, or the arenas : ) It's funny now, but looking back it was really embarassing. But you know what, I did what I had to do for a couple of years.
4 years later and we were completely out of debt with the exception of our mortgage (and fortunately we live in an area that is pretty much immune from the housing collapse, and we have about 150% equity in our house). My wife started working part-time this past winter and will be working full-time next fall, when my son starts 1st grade.
So it can be done.
My advice: minimize expenses (duh!), but do not stop saving for retirement. In fact, you should try to save even more if your wife is going to stop working. And enjoy these years. The first couple can be difficult, but really rewarding. After that, they are all rewarding : )