The development of impulsive-aggressive problem behavior and peer rejection was examined in sixty 4- to 5-year-old boys from low-income family backgrounds. Children's sociometric status and behavioral adjustment were assessed longitudinally at the beginning and end of the preschool year, and related to measures of peer interaction at three different points in time. Boys identified as socially rejected and aggressive in the beginning of the year were highly likely to be identified as such at the end of the year. Early in the preschool year, these children contributed to their own rejection by initiating socially aversive exchanges with peers. Although peers clearly perceived these problems, they did not reciprocate with counteraggression at first. However, as time passed, peers began to actively victimize these children, and most of the aggression on the part of victims became reactive in nature. Thus, the current findings strongly support a transactional model of the development of early peer rejection and conduct problems.