This investigation evaluated a multilevel model of dispositional and environmental factors contributing to the development of internalizing problems from preschool-age to school-age. In a sample of 375 families (185 daughters, 190 sons) drawn from three independent samples, preschoolers' behavioral inhibition, cortisol and gender were examined as moderators of the links between mothers' negative parenting behavior, negative emotional characteristics, and socioeconomic status when children were 3.95 years, and their internalizing problems when they were 8.34 years. Children's dispositional characteristics moderated all associations between these environmental factors and mother-reported internalizing problems in patterns that were consistent with either diathesis-stress or differential-susceptibility models of individual-environment interaction, and with gender models of developmental psychopathology. Greater inhibition and lower socioeconomic status were directly predictive of more teacher reported internalizing problems. These findings highlight the importance of using multilevel models within a bioecological framework to understand the complex pathways through which internalizing difficulties develop.