This short-term longitudinal study examined changes over time in social competence with peers as a function of child and classroom characteristics. One hundred and seventy ethnically diverse low-income children, all new to their peer groups, entered childcare classrooms with heterogeneous entry policies and ethnic/racial compositions. We observed them with their teachers and peers at entry and again six months later. Observers rated aggressive, anxious/withdrawn, and prosocial behavior with peers and observed complexity of peer play. Children who lacked peers with a shared ethnic heritage and children who spoke a different language at home than the language most often used in the classrooms appeared to be struggling with peer interaction six months after entry into the peer group. Children who had a peer who shared their ethnic heritage and entered the most ethnically diverse classrooms increased their complex peer play more than other children.