This study examined whether parental alcohol use in adolescence, adulthood, and for mothers, during pregnancy, was related to their young children's functioning in terms of their on‐time development as indicated by the number of developmental areas in which children experienced delay. Observed parenting practices and family socioeconomic status were tested as potential explanatory mechanisms of these links. Data came from the surveys and videotaped observations of a community sample of 123 biological parents and their 1‐ to 5‐year‐old children followed longitudinally. Results suggest that the negative association between parental alcohol use and children's development operates primarily through fathers' alcohol use. Additionally, father's adolescent regular alcohol use predicted the family's low socioeconomic status, which in turn predicted less skilled maternal parenting practices and children's developmental delay. Highlights This study examined whether parental alcohol use in adolescence, adulthood, and, for moms, during pregnancy was related to their young childrens' functioning in terms of their developmental functioning. Observed parenting practices and family socioeconomic status were tested as potential explanatory mechanisms of these links. There was a negative association between parental alcohol use, and children's development operates primarily through fathers = 92 alcohol use. Additionally, father's adolescent regular alcohol use predicted the family's low SES, which in turn predicted less skilled maternal parenting practices and children's developmental delay. Findings highlight the importance of prevention and intervention efforts aimed at reducing alcohol misuse both in adolescence, even before the young people have children, and in young adulthood. Furthermore, prevention and treatment programs providing support and education in parenting skills to families with a history of alcohol misuse could show benefits across generations.