We present a developmental model that describes normal peer relations and highlights processes that underlie the emergence of problems with peers in childhood. We propose that children's relationships with peers begin in the first years of life, with stable individual differences and preferences for particular peers emerging by three years of age. Social skills that facilitate peer relationships consolidate in the preschool years, during which time peer groups become structured with respect to friendship groups, gender, and dominance relations; some children begin to be rejected by their peers. In later childhood some children develop entrenched problems with peer relationships, in terms of loneliness, bullying and victimisation. Underlying cognitive and emotional processes that facilitate successful peer relationships at all ages are identified, and the extent to which peer relations play a causal role in the genesis of disorder is evaluated. A review of the evidence suggests that, rather than a simple pathway from problematic peer relations to disorder, there is a reciprocal relationship between children's problems with peers and their psychological problems from infancy to adolescence.