Examined social-cognitive behavior of anxious and nonanxious children, including social-cue interpretation and attribution and proposed behavioral responses to perceived peer hostility. From a pool of 252 fourth and fifth graders, 52 anxious and 38 nonanxious subjects were identified. Subjects watched videotaped peer interaction vignettes, each containing a negative peer behavior that was hostile, nonhostile (accidental), or ambiguous. Anxious children were as accurate as nonanxious children at identifying hostile intent in peer interactions, bur they tended to misinterpret nonhostile situations as hostile. Girls were more likely than boys to interpret ambiguous situations as hostile. In response to perceived hostility, anxious children, especially girls, were more likely to propose maladaptive strategies and less likely to propose adaptive strategies. Results suggest that anxious children may benefit from instruction in social-cue interpretation.