Negative affect is associated with both high stress and poor sleep, but questions remain about the direction of these associations across time and interactions between stress and sleep, especially in early childhood. The present study examined sleep deficits, family stress, and observed negative affect in a sample of toddlers at 30, 36, and 42 months (N = 504). Negative affect was observed during a parent–child free play task. Sleep was measured via actigraphy. Stress was measured using a cumulative risk index of socioeconomic status, single parent status, household chaos, role overload, parenting hassles, social support, and stressful events. Findings showed few associations between sleep and negative affect, except for toddlers experiencing high levels of family stress. Toddlers experiencing both high stress and poor sleep demonstrated the highest levels of negative affect in the lab at 30 months. Adequate sleep may serve as a protective factor for children in high-stress families.