AbstractBackgroundEmpathy‐understanding and sharing someone else's feelings‐is crucial for social bonds. Studies on empathy development are limited and mainly performed with behavioural assessments. This is in contrast to the extensive literature on cognitive and affective empathy in adults. However, understanding the mechanisms behind empathy development is critical to developing early interventions to support children with limited empathy. This is particularly key in toddlerhood, as children transition from highly scaffolded interactions with their parents and towards interactions with their peers. However, we know little about toddlers' empathy, in part due to the methodological constraints of testing this population in traditional lab settings.MethodsHere, we combine naturalistic observations with a targeted review of the literature to provide an assessment of our current understanding of the development of empathy in toddlerhood as it is expressed in real‐world settings. We went into toddlers' typical habitat, a nursery, and we performed 21 h of naturalistic observations of 2‐to‐4‐year‐olds. We then reviewed the literature to evaluate our current understanding of the mechanisms that underpin observed behaviours.ResultsWe observed that (i) emotional contagion, possibly a primitive form of empathy, was observed at the nursery, but rarely; (ii) older toddlers often stared when someone cried, but there was no clear evidence of shared feelings; (iii) teacher and parent scaffolding might be paramount for empathy development; (iv) as some atypical empathic reactions can be observed from toddlerhood, early interventions could be developed. Several competing theoretical frameworks could account for current findings.ConclusionsTargeted studies of toddlers and their interaction partners in both controlled and naturalistic contexts are required to distinguish different mechanistic explanations for empathic behaviour in toddlerhood. We recommend the use of new cutting‐edge methodologies to embed neurocognitively‐informed frameworks into toddlers' natural social world.