The primary purpose of this study is to examine relationships among social cognition, social anxiety, and social skills with friends and strangers in children. Ninety-two children (age 10-14 years) in Iceland completed questionnaires on social anxiety, social skills, assertiveness, self-efficacy, and outcome expectancy in social situations with friends and strangers. Children reported higher self-efficacy, more positive outcome expectancies, and higher assertion when interacting with friends than strangers. Results also indicate that self-efficacy with friends and self-efficacy with strangers significantly predicted social anxiety. Self-efficacy with friends (but not strangers) also predicted social skills as reported by the children and their parents. On the other hand, self-efficacy with strangers predicted assertiveness with strangers. Outcome expectancy with friends also contributed to the prediction of self reported and parent-reported social skills. Findings are discussed with regard to the importance of social cognition for the development of social anxiety and social skills.