The current study examines the interplay between parental overreactivity and children’s genetic backgrounds as inferred from birth parent characteristics on the development of negative emotionality during infancy, and in turn, to individual differences in externalizing problems in toddlerhood. The sample included 361 families linked through adoption (birth parents and adoptive families). Data were collected when the children were 9, 18, and 27 months old. Results indicated links between individual levels and changes in negative emotionality during infancy and toddlerhood to externalizing problems early in the third year of life. Findings also revealed an interaction between birth mother negative affect and adoptive mother overreactive parenting on children’s negative emotionality. This Genotype x Environment interaction predicted externalizing problems indirectly through its association with negative emotionality and revealed stronger effects of genetic risk for children with less overreactive parenting from their mothers. Limitations of this study and directions for future research are discussed.