Social interaction with peers and the understanding and feelings of loneliness were examined in 18 high-functioning children with autism and 17 typically developing children matched for IQ, chronological age, gender, and maternal education. Observations were conducted on children's spontaneous social initiations and responses to their peers in natural settings such as recess and snack time, and children reported on their understanding and feelings of loneliness and social interaction. Overall, children with autism revealed a good understanding of both social interaction and loneliness, and they demonstrated a high level of social initiation. However, they spent only half the time in social interactions with peers compared with their matched counterparts, and they interacted more often with a typically developing child than with another special education child. Despite the intergroup differences in frequency of interaction, a similar distribution of interactions emerged for both groups, who presented mostly positive social behaviors, fewer low-level behaviors, and very infrequent negative behaviors. Children with autism reported higher degrees of loneliness than their typical age-mates, as well as a lower association between social interaction and loneliness, suggesting their poorer understanding of the relations between loneliness and social interaction. Research and practice implications of these findings are discussed.