Behavioral genetic studies indicate that nongenetic factors play a role in the development of bipolar and major depressive disorders. The trait of neuroticism is common among individuals with major affective disorders. We hypothesized that high neuroticism among parents affects the family environment and parenting practices and thereby increases the risk of psychosocial problems among offspring. This hypothesis is tested in a sample of participants at high and low risk for major affective disorders, which contained parents with bipolar disorder (55), major depression (21), or no mental disorder (148) and their 146 children between 4 and 14 years of age. Parents with high neuroticism scores were characterized by low psychosocial functioning, poor parenting, more dependent stressful life events, and the use of more emotion-focused and less task-oriented coping skills. High neuroticism in parents was associated with internalizing and externalizing problems among the children, as assessed by parent and teacher ratings on the Child Behavior Checklist and clinician ratings. The results suggest that high neuroticism in parents with major affective disorders is associated with inadequate parenting practices and the creation of a stressful family environment, which are subsequently related to psychosocial problems among the offspring.