The adverse impact of smoking on respiratory diseases and birth outcomes in children is well-known. However, the influence of smoke exposure including environmental tobacco smoke (ETS) and maternal smoking during pregnancy on atopic dermatitis (AD) is not clear. The purpose of this study was to evaluate the effect of gestational smoke exposure on the development of AD in the offspring on the basis of the maternal and cord blood cotinine. We recruited 261 mother and newborn pairs in 2004. Cord blood and information on perinatal factors of children were gathered at birth. At 2 yr of age, information about development of AD and environmental exposures were collected. We compared AD with non-AD children for the concentration of cotinine in cord and maternal blood measured by high performance liquid chromatography-mass spectrometry. Multiple logistic regressions were performed to estimate the relationship of cotinine levels and AD. About 150 mother and child pairs completed the follow-up study and specimen collection with 38 (25.3%) children developing AD. Two (1.3%) out of 150 mothers smoked during pregnancy, while 38 (25.3%) mothers reported having ETS exposure. Cotinine levels in cord blood and maternal blood were highly correlated (r = 0.71, p < 0.001). The risk of AD was found to increase with maternal and cord blood cotinine levels in a dose-response manner (p for trend = 0.01). Children exposed to high levels (>75th percentile) had a significantly increased risk of AD. Smoke exposure during pregnancy might increase the risk of AD in children. Avoidance of prenatal smoke exposure may be warranted for early prevention.