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How did paleontologists discover that modern birds are actually dinosaurs?
A Museum exhibit showing the relationship between birds and dinosaurs.
Just as humans are both primates and mammals because we descended from the first primate and the first mammal, birds are both theropods and dinosaurs because they descended from the first theropod and the first dinosaur.

Like most discoveries in science, it wasn't a sudden realization like a light bulb going on but the gradual gathering of evidence and observations. So, the idea that modern birds are related to dinosaurs is pretty old. In the 1850s, scientists who examined skeletons noticed a great degree of similarity between birds and traditional dinosaurs. Then this idea lost favor until the 1960s when we had better methods for analyzing the evidence and creating a family tree. Since the 1960s, many pieces of evidence that have been discovered support the idea that birds are descendants of certain dinosaurs that lived millions of years ago.