To say what causes it you need to know that light from the sun is white… and that it contains all of the colours of light (Red, Orange, Yellow, Green, Blue, Indigo, and Violet – known as the colours of the rainbow!).
When white light shines through a rain drop the light bends and the different colours of light that make up white light bend by different amounts! So if white light hits a rain drop and all the colours bend by different amounts, they separate out! We than see this as a rainbow in the sky!
This picture shows what happens perfectly: The wight light enters the raindrop, bounces around and bends, splitting the light into its different colours 🙂
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