Pragmatic differentiation in bilinguals is the ability to use two languages appropriately with different speakers. Although some sensitivity emerges by 2 years, the effects of context on these skills and their relation to other developing metacognitive capacities have not been examined. The current study compared the language use of 28 bilingual children (aged 2;7 to 3;10 and 4;1 to 4;11) across two tasks. All children were bilingual in English and Marathi, an Indian language. Theory of mind measures were included to assess whether developing cognitive capacities relate to pragmatic language ability. Results indicated that pragmatic differentiation is not an all-or-none ability but one which develops during the preschool years and varies based on the conversational context. This development is also related to metacognitive abilities which emerge during this time. (Contains 1 table and 1 figure.)