Noting that low-income children are at risk for early school difficulties and that social and emotional competencies are hypothesized to be crucial for early school success, this study used naturalistic observations to provide descriptive information about low-income children's emotional and social competence in school settings. The specific goals of the study were to assess children's emotional and social behavior in the classroom and to examine associations among observed behavior, social-cognitive skills, and teacher-rated child functioning. Participating in the study were three Head Start preschoolers who were observed in their classrooms; emotion displays and social engagement states were coded in real time using handheld computers. Observations were conducted twice during free play for 10 minutes each. Children were also interviewed to assess emotion understanding, and given the Peabody Picture Vocabulary Test verbal skills; teachers reported on children's social skills, emotional regulation, problem behaviors, and early classroom adjustment. Findings revealed that children's observed emotion displays were related to observed social engagement (such as conflict or prosocial behavior), and emotion displays and social engagement were related to social-cognitive skills such as emotion knowledge and verbal abilities. Teacher reports of child functioning were also related to observed behavior. (Contains 31 references.) (KB)