This paper presents a selective review of the literature addressing the influence of young children's conversational environments and interactions on their psychological understanding of persons. Our dual purposes are to reveal some consensus on the current state of knowledge and to foster a programmatic approach to future research. The initial sections clarify what is meant by "conversation" and describe the nature of theory-of-mind development. We adopt the term "socio-cognitive development" to convey the fact that children's theory-of-mind understanding becomes more elaborate and flexible throughout childhood, and we discuss issues of measurement. The following sections deal directly with the influence of conversational environments and interactions on children's socio-cognitive understanding. We present findings that suggest that conversational interactions are of fundamental importance for the development of children's socio-cognitive understanding, and we examine the particular aspects of the former that have been shown to be the most effective in promoting the latter. We discuss the relationship between children's conversational references to thoughts and feelings and experimental assessments of their socio-cognitive understanding, and we offer a detailed list of considerations for future research. In the remaining sections, we highlight the important roles of (i) young children's expanding linguistic competence and (ii) their relationships, and we discuss implications for individual differences in children's developing social competence.