We examined the relations between maternal depression, discipline practices, and toddler mental health outcomes, specifically competence and total problem behavior. Ethnicity was considered as a moderator in all analyses. For the first time, ethnicity was considered as a moderator of the heritability of toddler competence and total problem behavior. The data came from the Arizona Twin Project. A subsample containing only Caucasian (66%) and Hispanic (34%; 87% of Mexican descent) participants was used. Primary caregivers (>95% mothers) reported on levels of maternal depression, discipline practices, and their twins' competency and problem behaviors. It was hypothesized that maternal depression would be associated with less competency and more problem behaviors in toddlers; inductive discipline practices would be associated with higher competency and fewer problem behaviors; and punitive discipline practices would be associated with lower competency and more problem behaviors. Ethnicity was predicted to moderate only the relation between discipline practices and toddler mental health. Consistent with predictions, maternal depression predicted less competency and more problem behaviors, and inductive discipline predicted higher competency and fewer problem behaviors, while punitive discipline predicted lower competency and more problem behaviors. Ethnicity moderated the relation between maternal depression at 12 months and total problem behaviors. The heritability of competence and total problem behavior varied across the Caucasian and Hispanic samples.