We investigated the natural history of atopic dermatitis (AD) in a population-based birth cohort and assessed whether children at risk of visible eczema at 5 years of age can be identified from total immunoglobulin E (IgE) levels measured at 8, 12 and 18 months. AD data collected included a whole body examination for visible eczema at 49 months (4 years) and 61 months (5 years) of age and parent completed questionnaire data throughout their early lives. Children were divided into four groups based on their natural history of early AD: persistent (AD at 1, 6, 18, 30 and 42 months, n = 34), intermittent early onset (before 18 months of age, n = 495), intermittent late onset (18–42 months of age, n = 273) and unaffected (n = 429). Visible eczema at 5 years of age was present in 12.2% (117/957) (95% confidence interval [CI] 10.1–14.3%) of the children. Levels of total IgE at 8, 12 and 18 months of age were associated with early onset of AD, but not with AD of later onset. For all four natural history groups, the geometric mean total IgE at 12 months was higher in those who subsequently had visible eczema than those who did not. However, the degree of overlap was such that total IgE at 12 months of age was a poor predictor of eczema at age five. A cutoff point of 78 kU/l had the highest positive predictive value for visible eczema at 5 years of age of 28.6%, with a sensitivity of 12% and specificity of 95%.