This paper presents a discussion of the effect of the physical environment on children receiving day care services. Various dimensions of the physical environment which may affect the well-being of infants, preschool and school age children in group or family day care settings are examined. The focus is on the overall well-being and development of children rather than on questions of health and safety. Included in the review are current practices in designing and licensing day care settings, recommendations intended to improve the quality of the day care environment, and current research evidence which suggests ways in which the Physical environment affects the behavior and development of children as well as the behavior of the adults involved in their care. Also included is a discussion of the usefulness of the Federal Interagency Day Care Requirements (FIDCR) as a means to control the quality of the physical environment in day care programs. These issues are examined under six major headings: indoor space, outdoor areas, play equipment, questions of organization and program, contextual constraints, and recommendations for changes in the FIDCR as they relate to the physical environment. (BD)