The aim of this paper is twofold: firstly to investigate whether the association between childhood and adult psychosocial adjustment can be explained by socio-economic adversity experienced during childhood, and secondly to explore the role of family socio-economic disadvantage and psychological development in explaining adult social inequality in psychological well-being. A developmental-contextual perspective is adopted to analyse the pathways linking childhood experiences to adult functioning in a changing socio-historical context. The study draws on longitudinal data collected for two cohorts of about 30,000 individuals born in Great Britain 12 years apart. Structural equation modelling is used to assess the long-term influence of socio-economic adversity on psychosocial adjustment, and to compare different explanatory models of health inequalities. The results reject a simple selection or social causation argument, suggesting that both dynamics operate in life course development. The effects of social risk cumulate throughout the life course, influencing both behaviour adjustment during childhood and adult psychosocial functioning. It is concluded that the explanation of health differences in adult life must account for the reciprocal interaction between individual behaviour and social circumstances.