Background: Children with poorer language skills are more likely to show externalizing behavior problems, as well as to become rejected by their peers. Peer rejection has also been found to affect the development of externalizing behavior. This study explored the role of peer rejection in the link between language skills and the development of externalizing behavior. Methods: Six hundred and fifteen (615) children were followed from kindergarten to grade 4. Receptive language skills were measured with the Peabody Picture Vocabulary Test in grade 2. Teachers reported externalizing behavior and peer reports of social rejection were measured annually. Results: Children with poorer receptive language skills showed increasing externalizing behavior, while children with better receptive language skills showed decreases in externalizing behavior. Children with poorer receptive language skills experienced peer rejection most frequently. The link between receptive language skills and the development of externalizing behavior was mediated by the development of peer rejection. Findings suggested that this mediational link applied mostly to boys. Conclusion: Children with poorer language skills are at increased risk of becoming rejected by mainstream peers, which adds to the development of externalizing behavior. © 2010 The Authors. Journal of Child Psychology and Psychiatry. © 2010 Association for Child and Adolescent Mental Health.