This is a report of the relationships found between perinatal complications of the newborn and quality of the early childhood environment, and physical, intellectual and social development at age 2. The study group of 670 is a representative sample of live births during the Kauai (Hawaii) Pregnancy Study in 1955. Each newborn infant was rated on a 4-point scale based on type and severity of complications recorded during pregnancy, labor, and delivery. Two percent had severe complications and 10% had moderate complications, leaving 88% subject to no complications judged to be more than mild. Distributions of perinatal scores were not significantly affected by ethnic origin, age of mother, socioeconomic status, family stability, or mother's intelligence. The quality of the environment of each child was also rated on scales based on socioeconomic status, family stability, and mother's intelligence in order to reflect material opportunities, intellectual stimulation, and emotional support available during the first 2 years of the child's life. Three-quarters or more of the families were judged to be average or above by each of the environmental influences. At age 2, children were given pediatric and psychological examinations. Fourteen percent were rated below average in health status or physical development, 16% in intellectual development, and 12% in social development, findings consistent with previous studies. However, there was relatively little overlap among the children identified as below normal by the three criteria confirming the need for cooperative assessment by pediatricians and psychologists. With increasing severity of perinatal stress, there was an increase in the proportion of 2 year olds considered to be below normal in physical status and in intellectual and social development. In all three areas, the developmental lag was especially pronounced for children with severe perinatal stress. In general, the quality of the home environment had a significant effect on both mental and social development by age 2, and the effect increased with severity of perinatal complications. It is important not to overlook the potential benefits of good early environment not only for children born with perinatal stress but also for the much larger number without stress who are born to families providing an unfavorable home environment. As the effects of environment are already apparent by age 2, it is necessary to provide enrichment programs much earlier than in current practice.