Objective: To test the hypothesis that family stress variables are associated with the effects of maternal depression on offspring diagnoses and examined whether such factors may be differentially associated with disorders in offspring of depressed and never-depressed women. Method: Eight hundred sixteen mothers and their 15-year-old children in an Australian community completed cross-sectional assessments of mother and youth diagnoses, interviewer-rated and self-reported quality of marital relationship/status, quality of parent-child relationship, and interviews for youth chronic and episodic stress. Women with depression histories were oversampled and included 458 never-depressed and 358 women with current or past major depressive episodes or dysthymic disorder. Results: Significant interaction effects were found between maternal depression and family discord/stress variables such that high levels of environmental risk factors were significantly associated with youth depression in children of depressed women compared with low levels of adverse conditions and were generally less associated with depression in children of nondepressed women. Nondepressive disorders were associated with adverse family and stress factors for both groups of children. Conclusions: The results are consistent with a multiple risk factor model of depression transmission in high-risk families and suggest a pattern of reactivity to adverse conditions among children of depressed women. The results suggest that psychosocial factors may contribute to diagnoses in offspring of depressed women in community samples. J. Am. Acad. Child Adolesc. Psychiatry, 2004;43(8):994-1002. Key Words: adolescent depression, maternal depression, family discord, stress.