This chapter examines the functions of peer relations in child development. It considers the correlates and consequences of socialization with other children along with the nature of child-child interaction in relation to developmental status. The chapter discusses modelling, tutorial and cognitive mechanisms in peer interaction and conditions making for effective peer relations in childhood. It reviews major findings concerning the origins and nature of children's friendships. The chapter explains that the thesis that, in all cultures, peer relations affect the course of socialization as profoundly as any social events in which children participate. Satisfactory home lives, continuing from early childhood through later childhood, are thus predictive of good peer relations. Peer interactions in early childhood are understood to be antecedents of adolescent associations; the child's awareness of the social world becomes more differentiated with age; social attraction rests on complex processes; and friendships derive from unique determinants.