This study examines the relation between the developmental social-cognitive capacity for interpersonal negotiation and both parental-risk and adolescent-outcome variables in 172 adolescents 11 to 19 years of age. The sample was divided into two groups: those at risk because of affective disorder in one or both of their parents and a comparison group whose parents have never experienced affective illness. Adolescents' interpersonal negotiation strategy (INS) levels were negatively associated with the duration of parental affective illness (and with associated lower socioeconomic status and marital discord). INS level significantly predicted adolescents' adaptive social functioning (AFR) even after controlling for age, sex, intelligence, number of adolescent diagnoses, and parental-risk factors. Two additioaal patterns were found in the risk group: adolescents with both high AFR and high INS, and adolescents who have disturbed functioning despite high INS, These findings are consistent with a risk model in which social-cognitive capacity mediates between parental disorder and adaptive child behavior, and they suggest the importance of assessing children at risk with a developmental measure of relational capacity to complement the more traditional diagnostic and behavioral outcome measures.Recently, a number of studies of children and adolescents in families in which the parents have diagnosable affective disorder have been conducted using structured diagnostic interviews with both parent and child that are scored according to criterion diagnostic systems (e.g., Beardslee, Keller, & Klerman, 1985;Weissman, Prusoff, & Gammon, 1984;Welner & Garrison, 1985). These studies concur in demonstrating high rates of diagnosable psychopathology in the children of parents with affective illness, particularly, high rates of major depression, the disorder of many of their parents. Another important outcome that tends to be impaired in these children is adaptive functioning, their current behavior in relationships and activities (Beardslee, 1986;Keller et a!., 1986). In addition to the simple presence of affective disorder in the parents, severity and chronicity of parental illness, marital discord, and low social status are associated with higher rates of both mental disorder and impairment in adaptive functioning in the children (Keller et ah, 1986).Less, however, is understood of how developmental processes