We investigated the effect of in utero and postnatal environmental tobacco smoke (ETS) exposure on respiratory symptoms and atopy in the first 3 years of life in children at high risk of allergic disease (both parents atopic). Three hundred and sixty-nine children were followed from birth and reviewed at ages 1 and 3 years (respiratory questionnaire, skin testing). Parental smoking questionnaires were administered, and plasma cotinine in cord and peripheral blood (at age 1 year) was measured (capillary column gas-liquid chromatography). Wheezing starting in the first year of life was significantly more common in children of smoking mothers (54.2% vs. 39.5%, P = 0.017), but not wheezing starting after age 1 year (10.8% vs. 10.9%, smoking and nonsmoking mothers, P = 0.99). Detectable cord cotinine was not associated with wheeze. More frequent wheeze in infancy was significantly more common in those with detectable 1-year cotinine (e.g., wheeze without colds, 17.8% vs. 5.6%, P = 0.02; wheeze most days, 6.5% vs. 0%, P = 0.04). ETS exposure was not associated with atopy. In the multivariate regression analysis, maternal smoking during pregnancy and/or in the first year of life remained associated with wheeze in the first year of life (odds ratio, 1.88; 95% confidence interval, 1.14–3.12; P = 0.01). ETS exposure in “high-risk” infants increases the risk of wheezing starting in the first year of life, but not after age 1 year. However, ETS exposure has little or no effect on the development of atopy. Measurement of plasma cotinine was no more useful than tobacco exposure assessment by questionnaire in our cohort. Pediatr Pulmonol. 2004; 37:492–498. © 2004 Wiley-Liss, Inc.