Since traditional chapter books have spot illustrations, and since some people might consider them picture books instead of illustrated books, I’m going to quote from some of the reviews and read your comments below about their literary merit.

DORY FANTASMAGORY by Abby Hanlon

Kirkus;  Often just on the edge of out of control, this inventive child is irresistible and her voice, convincing. Childlike drawings, often embellished with hand-lettered narrative or speech bubbles, of round-headed humans, Sendak-ian monsters and a snaggle-toothed witch add to the humor. Charming, funny and true to life.

Publishers Weekly: Reality and fantasy combine hilariously in a story that, at heart, is about a girl who wants little more than to spend time with her brother and sister. Hanlon’s (Ralph Tells a Story) loosely scrawled illustrations, speech balloons, and hand-lettering are an enormous part of the story’s humor, channeling Dory’s energy and emotions as emphatically as the narration. Time spent with Dory is time well spent.

School Library Journal: Hanlon effectively uses many childlike pencil drawings and word balloons interspersed with a good mix of short and long sentences in brief, episodic chapters full of Dory’s hilarious adventures. New vocabulary words are used in context within familiar settings and situations for the audience, creating a successful transitional book for new readers ready for longer stories. Dory ultimately finds a way to prove her bravery to her brother and sister, and readers will laugh at her entertaining antics.

THE PRINCESS IN BLACK by Shannon and Dean Hale

Booklist: The authors of Rapunzel’s Revenge (2008) and Calamity Jack (2010), writing here for a slightly younger audience, successfully turn the treacly princess genre on its ear, offering beginning readers a clever, adventurous, and self-reliant heroine who is equally at home in black or pink.

Kirkus:  The gently ironic text will amuse readers (including adults reading the book aloud). The large print and illustrations expand the book to a longish-yet-manageable length, giving newly independent readers a sense of accomplishment. The ending hints at another hero, the Goat Avenger. Action, clever humor, delightful illustrations and expectation-defying secret identities–when does the next one come out?

We’ve always tried to find some lesser known gems among this genre.  Do either of these rise to the level of Newbery distinction for you?