The purpose of this exploratory study was to examine the effects of (a) parent–child interaction and (b) home environment on the early development of empathy in toddlers. A total of 176 Japanese families (both young children and their parents) were enrolled in this study. Laboratory assessment of children's empathy development and caregiver's rearing competence was made during a controlled observation of parent–child interaction. The results of this study suggest that of all the factors examined, the degree of parent–child interaction, the stability of long-term parenting practices, parental attitude, and mother's mental health status were correlated with development of empathy in children. These findings provide new indicators for the development of individualized intervention methods for use in clinical practice.