This study examined the direct and interactive effects of stress reactivity and family adversity on socioemotional and cognitive development in three hundred and thirty-eight 5- to 6-year-old children. Neurobiological stress reactivity was measured as respiratory sinus arrhythmia and salivary cortisol responses to social, cognitive, sensory, and emotional challenges. Adaptation was assessed using child, parent, and teacher reports of externalizing symptoms, prosocial behaviors, school engagement, and academic competence. Results revealed significant interactions between reactivity and adversity. High stress reactivity was associated with more maladaptive outcomes in the context of high adversity but with better adaption in the context of low adversity. The findings corroborate a reconceptualization of stress reactivity as "biological sensitivity to context" by showing that high reactivity can both hinder and promote adaptive functioning. (Contains 5 tables and 6 figures.)