Social understanding competence develops in sensitive and co-regulating caregiver interactions. Parental reflective functioning (PRF) and parenting stress can affect children's social understanding. This study investigated if children's social understanding was associated with PRF and parenting stress. Parents of 305 Italian children aged from 24 to 72 months (M = 48.2, SD = 13.9; 47.9% girls) completed an online survey. Parents completed the following questionnaire: The "Parenting Stress Index--Short Form," the "Parental Reflective Functioning Questionnaire," and the "Children's Social Understanding Scale." Results showed that children's social understanding was predicted by lower parenting stress, b = 0.002, p = 0.017, and parent's interest and curiosity about the child's mental states, b = 0.07, p = 0.013. Findings confirm that high levels of parenting stress and low PRF constitute unfavorable conditions for preschoolers' socio-cognitive development. Thus, the present study can have implication for interventions aimed at improving children's social understanding that should focus on reducing parenting stress and enhancing parental mentalizing.