OBJECTIVE To provide estimates of the numbers of New South Wales children in Family Day Care who may be exposed to environmental tobacco smoke while attending day care; to describe existing smoking policies; and to analyse these policies with the aim of providing guidelines for smoking policy in Family Day Care. METHODS All 109 Family Day Care schemes in NSW. METHODS Scheme coordinators were sent a questionnaire regarding the proportion of carers who smoked while caring for children; the nature, enforcement and experience of smoking policies; and barriers to implementation of a no-smoking policy. RESULTS A mean of 10% of Family Day Care caregivers were reported to smoke while caring for children (range, 0-60%). An estimated 2045 children were potentially exposed to environmental tobacco smoke in the 86 schemes which provided this information. Thirty-five per cent of schemes had formal no-smoking policies. A range of advantages, disadvantages and perceived practical and legal barriers to implementation of a no-smoking policy in Family Day Care were described. Forty-four per cent of schemes with no-smoking policies reported no implementation problems. CONCLUSIONS There is considerable potential for exposure of children to environmental tobacco smoke in Family Day Care homes. There is legal support for Family Day Care caregivers not to expose children under their care to environmental tobacco smoke. A formal (and enforced) no-smoking policy should exist in every Family Day Care scheme, and a "top-down" directive is most likely to be successful. The issue of other smokers in the caregiver's household needs to be specifically addressed in any such directive.