The emphasis on inclusion of diverse learners presents challenges to early-years teachers, particularly those whose understandings have been framed by notions of school readiness and of special education for children with disabilities. This mixed-method study of children and teachers in early-years classes across three school sites in Australia explored factors associated with children's development, achievement and adjustment. The focus went beyond organisational or structural issues to consider pedagogic responses to diverse learners from the kindergarten class through Year 1 and Year 2. The study identified factors influencing teachers' responses to diversity, and highlighted areas of tension between inclusive policies, resourcing and normative understandings that have implications for teachers' professional learning. (Contains 4 tables and 1 figure.)