A study examined the effects on early literacy learning of two dimensions of learning contexts: formality (peer writing and pretend play) and social relationships (friends and acquaintances). Same gender dyads of kindergarten friends were observed in peer writing and pretend play settings across the school year. A total of 33 males and 23 females participated. Observational measures of literate language and emotion language were collected across a 9-month period, as were proximal and distal measures of reading and writing. Results indicated that (1) the emotional tenor of close relationships afford children opportunities to reflect upon cognitive and linguistic processes which constitute early literacy; (2) close relationships for girls, compared to boys, afforded opportunities to express literate language; (3) differences were observed when children were observed with friends, compared to acquaintances; (4) the formality of the interactional setting also influenced language between peers; and (5) talk about language and literacy was a reliable predictor of literacy. Findings support the importance of close relationships and emotion for early literacy development. (Contains 46 references and 4 tables of data.) (Author/RS)