This study assessed young children's understanding of the effects of emotional and physiological states on cognitive performance. Five, 6-, 7-year-olds, and adults (N = 96) predicted and explained how children experiencing a variety of physiological and emotional states would perform on academic tasks. Scenarios included: (a) negative and positive emotions, (b) negative and positive physiological states, and (c) control conditions. All age groups understood the impairing effects of negative emotions and physiological states. Only 7-year-olds, however, showed adult-like reasoning about the potential enhancing effects of positive internal states and routinely cited cognitive mechanisms to explain how internal states affect performance. These results shed light on theory-of-mind development and also have significance for children's everyday school success.