Understanding children's decisions to include a child with a disability in activities is an important component of the social environment of children with disabilities. We examined preschool children's understanding of the motor and social competence of hypothetical children with a physical disability, children's decisions to include or exclude a peer with a physical disability in play activities, and children's justifications of their inclusion/exclusion decisions. Children understood that a peer with a physical disability would have more difficulty with activities requiring motor skills than social skills and were more likely to include a peer with a physical disability when the activities required minimal motor skills. The role of typically developing children's understanding of social contexts in peer relationships is discussed. (Contains 1 table.)