Research has shown that offspring of depressed caregivers are at increased risk for maladaptive development and emotional difficulties. Specifically, infants and toddlers of depressed mothers have been shown to evidence higher percentages of insecure attachments and more behavioral difficulties than offspring of nondisordered mothers. However, even in studies that reveal significant differences between children of depressed and nondepressed caregivers, a substantial number of children with depressed caregivers do not evidence dysfunction. Such findings have resulted in increased attention to the broader social context in which children of depressed mothers develop. This investigation examined the direct influences of maternal depression on child development, as well as the role of contextual risks that may be particularly heightened in families with depressed parents. Toddlers with depressed mothers evidenced significantly more insecure attachments than did toddlers with nondisordered mothers, and this difference was not accounted for by contextual risk. In predicting child behavior problems, contextual risk was found to mediate the relation between maternal depression and child behavior problems. Father-report data on child behavior corroborated the mother report data. Results are discussed in terms of the diversity of functioning in offspring of depressed caregivers that can be attributed to varied levels of contextual risk accompanying depression.