Daily interactions with their caregivers build an important proximal environment for children. These early experiences shape children’s internal working model, comprising mental representations that guide future expectations and behavior. Moreover, early positive relationships are considered as a source of resilience for the child and his/her future life. It is very relevant to identify risk and protective factors for sensitive caregiving, especially for families who are highly burdened and at risk to show insensitive caregiving. Importantly, as parent-child interactions have a dyadic nature, also factors of the child should be taken into account when determinants of parenting behavior are examined. The present study analyzed psychosocial family risk, parenting stress, and children’s temperamental disposition as determinants of three dimensions of parenting behavior in the infant-toddler period in a sample including a substantial proportion of high-risk families. Furthermore, the effect of situational demand on parenting behavior was explored. Additionally, the development of three dimensions of children’s temperament in the context of family risk and parents’ parenting stress was investigated, and the effect of parents’ behavior on their children’s temperament development was analyzed. The German Development Study, a cooperative project of four research groups, has a sequential cohort design with children from two age cohorts and data assessed at two measurement points, which were about seven months apart. Taking data from a pre-assessment in which 21 distal and proximal risk factors were assessed into account, low-, medium-, and high-risk families were selected for the study. At wave 1, the sample of the German Development Study consisted of 197 children at the ages of 12 and 19 months in the younger and the older cohort, respectively, and their primary caregivers. At both waves, data assessment was conducted during home visits which followed an equivalent semi-structured procedure. Parenting behavior was assessed by two videotaped parent-child interactions, a free play situation and a structured situation, which put higher demands on the parent-child dyad. Child temperament, parenting stress, and psychosocial risk were assessed by parent report questionnaire. Our results showed that when a cut-off-score of four risk factors in the family’s life was reached, maternal responsivity was significantly lowered whereas maternal intrusiveness was significantly heightened. Interestingly, when distal and proximal risk factors were considered separately, analyses revealed that mainly distal risk factors were predictive of lower parenting quality. Results regarding the effect of parenting stress on parenting behavior were partly surprising as mothers’ stress experience due to personal restrictions was related to higher parenting quality. Furthermore, besides child temperament being influenced by parenting behavior, we mainly found parenting behavior to be influenced by child temperament. Interestingly, the effect of child temperament on parenting behavior was partly moderated by family’s risk exposure: Children’s negative affectivity predicted higher maternal responsivity in low-risk families, but lower maternal responsivity in high-risk families. Additionally, children’s effortful control predicted higher maternal sensitivity in the context of a given child-related (negative affectivity) or environmental risk (distal risk). Moreover, an interplay between the temperament dimensions negative affectivity and effortful control and the parenting dimension responsivity was found: In the context of high maternal responsivity, high negative affectivity predicted high effortful control, showing how external regulation (maternal responsivity) fosters internal regulation (effortful control). Besides interindividual differences in parenting behavior, also intraindividual differences were found: Particularly when mothers reported high child-related parenting stress, their parenting quality decreased when the situational demands of the mother-child interaction increased. Finally, regarding the effect of family risk on children’s temperament, results revealed more difficult temperamental characteristics under risk exposure, particularly in boys. Moreover, also parenting stress was found to be related to difficult temperament, particularly mothers’ stress experienced as feelings of incompetence in regard to parenting: Maternal feelings of incompetence predicted regulative and reactive aspects of child temperament. Our findings indicate that high-risk families with children who bring along demanding characteristics, such as regulatory problems, should be of special interest regarding prevention and intervention programs. As negative effects of risk on parenting behavior and children’s temperament had already emerged at the end of infants’ first year of life, these programs should start as early as possible, in order to prevent families from a consolidation of negative parenting behaviors and difficult child characteristics mutually enhancing each other.