Background Parents' ability to correctly perceive their child's skills has implications for how the child develops. In some studies, parents have shown to overestimate their child's abilities in areas such as IQ, memory and language. Emotion Comprehension (EC) is a skill central to children's emotion regulation, initially learned from their parents. In this cross‐sectional study we first tested children's EC and then asked parents to estimate the child's performance. Thus, a measure of accuracy between child performance and parents' estimates was obtained. Subsequently, we obtained information on child and parent factors that might predict parents' accuracy in estimating their child's EC. Methods Child EC and parental accuracy of estimation was tested by studying a community sample of 882 4‐year‐olds who completed the Test of Emotion Comprehension (TEC). The parents were instructed to guess their children's responses on the TEC. Predictors of parental accuracy of estimation were child actual performance on the TEC, child language comprehension, observed parent–child interaction, the education level of the parent, and child mental health. Results Ninety‐one per cent of the parents overestimated their children's EC. On average, parents estimated that their 4‐year‐old children would display the level of EC corresponding to a 7‐year‐old. Accuracy of parental estimation was predicted by child high performance on the TEC, child advanced language comprehension, and more optimal parent–child interaction. Conclusion Parents' ability to estimate the level of their child's EC was characterized by a substantial overestimation. The more competent the child, and the more sensitive and structuring the parent was interacting with the child, the more accurate the parent was in the estimation of their child's EC.