He looks really lifelike to Keyleth--but, yes, her knowing it's an illusion probably breaks the realism enough that her hand would go right through it. That doesn't keep her from beaming at it, though.

"He's so cute," she coos, hands fisted beneath her chin. "I love squirrels." Admittedly, there are very few animals Keyleth doesn't love, but that's neither here nor there.