The possibility that neighborhood conditions affect children's development has captured much attention because of its implications for prevention. But does growing up in deprived neighborhoods matter above and beyond a genetic liability to behavior problems, if genetically vulnerable families tend to concentrate in poor neighborhoods? A nationwide study of 2-year-old twins shows that children in deprived neighborhoods were at increased risk for emotional and behavioral problems over and above any genetic liability. Environmental factors shared by members of a family accounted for 20% of the population variation in children's behavior problems, and neighborhood deprivation accounted for 5% of this family-wide environmental effect. The results suggest that the link between poor neighborhoods and children's mental health may be a true environmental effect, and demonstrate that genetic designs are environmentally informative and can be used to identify modifiable risk factors for promoting child health.