The objective of this article is to examine the pathways by which children’s physical health status, environmental, family, and child factors affect children’s academic performance and prosocial behaviour, using a theoretically‐based and empirically‐based model of competence development. The model proposes that 3 types of relational processes, dealing with opportunity, support, and skill development through participation, lead to competence. Structural equation modelling was performed on cross‐sectional, parent‐report data for approximately 10,000 Canadian children aged 6–11 years from the 1994–95 National Longitudinal Survey of Children and Youth. The analyses controlled for family socioeconomic status and child’s age and sex, and included 3 groups of children (those with activity‐limiting conditions, non‐activity‐limiting conditions, or no health problems). There was little evidence that children with chronic conditions were at direct risk for poorer outcomes. Children with activity‐limiting conditions were at increased indirect risk for academic difficulties through the role played by cognitive functioning. Cognitive functioning and hyperactivity/inattention difficulties were the major predictors of academic performance. Recreational participation and behavioural functioning were the main predictors of prosocial behaviour. The pathways in the model also indicated the importance of family functioning, social support to parents, and neighbourhood cohesion. In conclusion, the findings indicate the utility of the model of competence development in understanding the pathways and processes by which various factors affect children’s academic and social outcomes.