Classmates' academic skill level (peer effects) is emerging as an important predictor of individual student achievement, particularly in the early grades. However, less is known about the influence of peer effects with regard to classmates' self-regulation skills and whether they are associated with students' academic gains. Examining this is the purpose of the current study. Using a direct measure of self-regulation, the head-toes-knees-shoulders (HTKS), which assesses students' ability to coordinate their attention, ability to inhibit and switch tasks, and working memory, the classroom mean HTKS was computed to represent peer effects. With 2 cohorts of 1st graders, the effect of peers' self-regulation on literacy outcomes was examined, controlling for individual student self-regulation. In Cohort 1, 445 participants from 46 1st grade classrooms in 10 schools were included. In Cohort 2, 633 students in 68 classrooms in 18 schools were included. Using hierarchical linear modeling, peer effects predicted children's growth in passage comprehension (Cohen's d = 0.35 for Cohort 1 and 0.31 for Cohort 2) as well as their vocabulary growth (Cohen's d = 0.24 for Cohort 1 and 0.16 for Cohort 2). These were independent effects above that of individual children's fall self-regulation and school-wide percentage of students qualifying for the U.S. free and reduced price lunch program, which were both significantly related to student literacy outcomes. (Contains 5 tables and 2 figures.)