INTRODUCTION: Prenatal tobacco exposure, through maternal smoking during pregnancy, has been associated with adverse mental health outcomes in childhood. However, the mechanisms by which prenatal tobacco exposure compromises mental health later in life are unclear. We hypothesized that sensitized reactivity to stressful life events in early childhood mediates the effect of prenatal tobacco exposure on mental health outcomes in middle childhood, after accounting for earlier mental health outcomes. METHODS: Data were from 12,308 mothers and their children drawn from the Avon Longitudinal Study of Parents and Children, a large prospective population-based study. Mothers’ self-reports of smoking during pregnancy, mothers’ ratings of their child’s reactivity to stressful life events, and teachers’ and mothers’ ratings of the Strengths and Difficulties Questionnaire assessing 5 domains of mental health outcomes were measured. RESULTS: A positive association was found between prenatal tobacco exposure and stress reactivity between the ages of 2 and 6. In turn, stress reactivity was positively associated with peer (isolation), hyperactivity, conduct, and emotional problems (but not prosocial behaviors) between the ages of 7 and 11, after accounting for the mental health outcome at age 4 and other confounders. CONCLUSIONS: Heightened stress reactivity in preschool ages mediated the effect of prenatal tobacco exposure on adverse mental health outcomes between the ages of 7 and 11. Interventions to assist children exposed to tobacco smoke during gestation in coping with stressful life events may help mitigate psychiatric symptoms in this population.