The role of psycho-social factors in the development of allergy was studied prospectively in 82 infants with a family history of atopy. The family participated in a standardized family test when the children were 18 months old. The ability to adjust to demands of the situation ('adaptability'), and the balance between emotional closeness and distance ('cohesion'), were assessed from videotapes by independent raters. Families rated as functional in both of these aspects were classified as 'functional', otherwise as 'dysfunctional'. The social network, life events, atopic symptoms (based on postal inquiries regarding symptoms answered by the parents, and on physical examinations), psychiatric symptoms, and socio-economic circumstances of the families were evaluated when the children were 18 months and 3 years of age. The children were classified as atopic (asthmatic symptoms or eczema) or as non-atopic. All but two children with atopic disease at 3 years of age had atopic disease before 18 months of age, while 32 of 60 children with atopic disease at 18 months of age had no problems by 3 years of age. An unbalanced family interplay at 18 months was associated with a relative risk (RR) of 1.99 for continuing atopic illness at 3 years of age (1.18 < RR < 3.37, p = 0.01). There was a weak positive confounding effect for smoking (RR reduced by 7%), eczema on three or more localizations (RR reduced by 4.5%), and the amount of cat allergen in household dust (RR reduced by 3%). Recovery from atopic illness between 18 months and 3 years of age was four times as probable in families with functional interaction and a good social supportive network when children were 18 months of age, than in dysfunctional families with a poor social network (74% versus 20% p < 0.01). Children with asthmatic symptoms showed more signs of emotional distress than did healthy children (p = 0.02). Dysfunctional family interaction patterns were more commonly observed in families of children who at 3 years of age still had atopic symptoms, than in children who had recovered. The patterns included expression of emotion and reaction to the needs of others, alternating between total disinterest and over-involvement (p = 0.02), lack of support and rejection of offered support (p = 0.01), a greater number of individual decisions without regard to the other family members (p = 0.04), and indistinct 'generational boundaries' (p = 0.04). We conclude that psychosocial factors, such as family interaction and a supportive social network, play a significant role in the course of atopic illness in early childhood and that measures which enhance family interaction and the social network could influence the course of the disease favorably.