Individual differences in young children's understanding of others' feelings and in their ability to explain human action in terms of beliefs, and the earlier correlates of these differences, were studied with 50 children observed at home with mother and sibling at 33 months, then tested at 40 months on affective-labeling, perspective-taking, and false-belief tasks. Individual differences in social understanding were marked; a third of the children offered explanations of actions in terms of false belief, though few predicted actions on the basis of beliefs. These differences were associated with participation in family discourse about feelings and causality 7 months earlier, verbal fluency of mother and child, and cooperative interaction with the sibling. Differences in understanding feelings were also associated with the discourse measures, the quality of mother-sibling interaction, SES, and gender, with girls more successful than boys. The results support the view that discourse about the social world may in part mediate the key conceptual advances reflected in the social cognition tasks; interaction between child and sibling and the relationships between other family members are also implicated in the growth of social understanding.