Research has shown that 2-year-olds engage in peer-directed aggression and initiation of conflict. However, there has been little consideration of the factors associated with variability in toddlers' aggression. One hundred and four toddlers (52 females) were observed for 35 min of free play with a same-sex peer, with both mothers present. Experience in early out-of-home care was not related to aggression. Toddlers' observed and mother-rated dysregulated temperament, and mothers' use of warmth and negative dominance during interactions with their children, were used to predict toddlers' aggression and maternal ratings of externalizing difficulties. Boys were observed to be more aggressive than girls. Regression analyses showed that, after controlling for main effects, the interaction of child gender, temperament, and maternal negative dominance predicted both outcomes. Observed aggression and mother-reported externalizing problems were associated significantly with dysregulated temperament only for boys with mothers who demonstrated relatively high levels of negative dominance.