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.