Family-based tests of association between a candidate locus and a disease evaluate how often a variant allele at the locus is transmitted from parents to offspring. These tests assume that in the absence of association, an affected offspring is equally likely to have inherited either one of the two homologous alleles carried by a parent. However, transmission distortion was documented in families in which the offspring are unselected for phenotype. Moreover, if offspring genotypes are associated with a risk factor for the disease, transmission distortion to affected offspring can occur in the absence of a causal relation between gene and disease risk. We discuss the appropriateness of adjusting for established risk factors when evaluating association in family-based studies. We present methods for adjusting the transmission/disequilibrium test for risk factors when warranted, and we apply them to data on CYP19 (aromatase) genotypes in nuclear families with multiple cases of breast cancer. Simulations show that when genotypes are correlated with risk factors, the unadjusted test statistics have inflated size, while the adjusted ones do not. The covariate-adjusted tests are less powerful than the unadjusted ones, suggesting the need to check the relationship between genotypes and known risk factors to verify that adjustment is needed. The adjusted tests are most useful for data containing a large proportion of families that lack disease-discordant sibships, i.e., data for which multiple logistic regression of matched sibships would have little power. Software for performing the covariate-adjusted tests is available at http://www.stanford.edu/dept/HRP/epidemiology/COVTDT. Genet. Epidemiol. © 2004 Wiley-Liss, Inc.