This study explored preschoolers' social cognition about their affect and behavior in difficult peer situations. Children completed the Challenging Situations Task (CST), a pictorial forced-choice measure developed to examine preschoolers' affective and behavioral responses to three problematic peer situations. Children also completed a task designed to assess their understanding of emotional expressions and situations. Children's emotional displays were observed in the preschool; their likability was rated by peers; and their adjustment was rated by teachers by means of the Behar Problem Behavior Questionnaire. Results indicated that children's expressed emotions and understanding of emotions predicted their social cognition about developmentally important situations. Results also indicated that the quality of children's social cognitions about these situations predicted others' evaluations of their social competence in the preschool environment. A list of 34 references is included. An appendix describes the three CST scenarios. (BC)