According to previous research, social experiences with other children might explain why three-year-olds are already quite proficient in understanding desires but not beliefs as subjective mental states. This study investigated toddlers' (N = 50) developing subjective understanding of incompatible desires around the age of 3 years (M = 35.5 months) and the associated social factors (i.e., family demographics, peer, and sibling variables). Results indicated a developmental sequence from understanding desires to understanding desire-dependent emotions with an unexpected positivity bias in toddlers' prediction of own emotions. A hierarchical regression model revealed that specific social factors (i.e., reported quality of peer interactions and day care attendance) individually contributed to explaining the variance in children's desire-reasoning skills. Findings are interpreted as supporting a belief–desire asymmetry, and specific social experiences, such as positive peer interactions and desire conflicts, may promote toddlers' understanding of incompatible desires as subjective mental states.