In this chapter, we review research on the development of gender identity and relate that development to play. Gender differences in play are seen as one aspect of gender identity. There is evidence that preference for gender-typed toys occurs prior to gender identity, but is incorporated as part of the child’s gender schema during the third year of life. We also discuss implications of the development of gender differentiated play in terms of long term outcomes. While children’s gender identity is influenced by the maturation of cognitive capacities in the child, the timing and intensity of preferences are influenced by environmental variables. Children’s identification of themselves as boys or girls has consequences for whom they play with (gender segregation), the types of play materials they choose, and the roles they take. Once gender identity is established the nature of the child’s play is forever changed. Our argument is that this interaction of gender and play influences the nature of a child’s relationships with peers and teachers, the child’s cognitive competencies, and the child’s adoption of functional or dysfunctional behaviors.