Participants in this study were 66 British toddlers who were observed at home with familiar peers on two occasions, six months apart. The majority of toddlers spoke to their peers, with short sequences of conversation emerging after the age of 24 months. The use of possessive pronouns emerged between 18 and 24 months of age and consolidated over the next year. Toddlers who said "mine" were also more likely than other children to say "yours." The use of possessive pronouns was associated with other language about the possession of objects and references to the motivational states of desire and need, suggesting a general understanding of the concept of object possession. The use of possessive pronouns was initially associated with physical aggression but children who used possessive pronouns at the first visit were significantly more likely to share objects with their peers six months later. The findings suggest that general conversational competence and the particular ability to talk about the possession of objects may facilitate positive relations with peers.