Previous studies have documented weaknesses in cognitive ability and early academic readiness in young children with traumatic brain injury (TBI). However, few of these studies have rigorously controlled for demographic characteristics, examined the effects of TBI severity on a wide range of skills, or explored moderating influences of environmental factors on outcomes. To meet these objectives, each of three groups of children with TBI (20 with severe, 64 with moderate, and 15 with mild) were compared with a group of 117 children with orthopedic injuries (OI group). The children were hospitalized for their injuries between 3 and 6 years of age and were assessed an average of 1½ months post injury. Analysis revealed generalized weaknesses in cognitive and school readiness skills in the severe TBI group and less pervasive effects of moderate TBI. Indices of TBI severity predicted outcomes within the TBI sample and environmental factors moderated the effects of TBI on some measures. The findings document adverse effects of TBI in early childhood on postacute cognitive and school readiness skills and indicate that these effects are related to both injury severity and the family environment. (JINS, 2008, 14, 734–745.)