The present paper reported on a new method and procedure for assessing preschooler's social competence. This method utilized an observational measure of intersubjectivity to assess the social competence that develops in real time during interaction between two or more children. The measure of intersubjectivity reflected a conceptualization of the construct as multi-dimensional and co-constructed during interaction. Findings showed the measure to be reliable and valid for a low income preschool population. In addition, intersubjectivity levels and dimensions were shown to vary with group characteristics and play type. Longer interactions were found to have higher levels of intersubjectivity across dimensions. These findings suggest that children's social competence is not a function of individual child capacities, but rather a product of engagement in shared activities such as play. As an indicator of the competence displayed during interactions, intersubjectivity was also shown to be tied to the particular contextual elements of the interactions and reflective of the types of play in which children participated. This offers a functional view of social competence, in which young children establish intersubjectivity with their peers for specific purposes during interaction. In this way, neither social competence nor intersubjectivity is viewed in terms of individual capacities, but rather in terms of social tools that children use to aid and sustain their play interactions. From this perspective it may be possible to analyze how preschoolers accomplish social competence during interaction and to provide supports within the classroom for this process.