This paper examines the impact of outdoor pollution and parental smoking on children's health from birth until the age of three years in Germany. We use representative data from the German Socio-Economic Panel (SOEP), combined with five air pollution levels. These data were provided by the Federal Environment Agency and cover theyears 2002-2007. Our work makes two important contributions. First, we use European data to replicate and extend an important US study by following the effects of pollution exposure and parental smoking on child health during the first four years of life. Second, we have health measures not only for infants but for toddlers as well. For infants, as well as for two- to three-year-olds, we are able to account for time-invariant and unobserved neighborhood and maternal characteristics. Our results suggest a significantly negative impact of some pollutants on infant health. High exposure to CO prior to birth causes, on average, a 289 g lower birth weight. With respect to toddler health, we find that disorders and in particular those as bronchitis and respiratory illnesses are affected particularly by O3 levels.