The relationship between marital distress and children's level of functioning was examined in a study in which children were observed in peer and family interactions. Couples were considered distressed if both partners scored below the mean on the Marital Adjustment Test. The subjects were members of five families with distressed couples and eight families with couples that were not distressed. All families included a child between the ages of 3.5 and 6 years. Parents and children were seen together in a family session; parents were then seen in a marital session and children in a 30-minute, in-school, free-play session with friends. The interactions in the free-play session were coded to measure the quality of the child's peer relations. Although the expectation that children of families with distressed couples would evidence disruptions in peer relations was only partially supported, children of nondistressed parents were able to engage in higher levels of play than were children of distressed parents. However, children whose fathers were less happy in their marriages received more positive attention from their peers. Further research is recommended. (LB)