Background: Prenatal exposure to smoking and alcohol consumption is associated with various adverse physical health consequences for children. Numerous studies find that prenatal substance use is associated with low birthweight, as well as subsequent developmental and cognitive problems. A growing body of literature has also begun to show associations between prenatal exposure to smoking or/and alcohol and behavior problems among children. However, it is not clear whether these latter associations arise from underlying confounding factors that can impact both the mother's decision to smoke or drink during pregnancy and subsequent child behavior. Aims of Study: This study investigate the relationship between prenatal substance use and subsequent children's behavior problems in early childhood (4-6.5 years) and in later childhood (8-10.5 years). The datasets used are the Children of the National Longitudinal Survey (CNLSY), linked with the National Longitudinal Survey of Youth (NLSY79). Methods: Prenatal substance use is measured by binary indicators of smoking during pregnancy and alcohol-use during pregnancy. The outcome of interest is the age and gender specific standardized Behavior Problem Index (BPI) scale that is constructed using 32 mother-reported items on the child's behavior, as well as six subscales of problem behavior. Initially OLS regressions are estimated to verify the positive association between prenatal substance use and higher-levels of behavior problems. Thereafter, maternal fixed effects, maternal household fixed effects, propensity score matching, and propensity score inclusive regressions are all employed to obtain estimates of the effects of prenatal smoking and alcohol-use after reducing bias from unobserved confounding factors. Results: Initial OLS results find very strong associations between prenatal smoking and alcohol-use and higher levels of behavioral problems among both younger and older children. However, when we use fixed-effects, propensity-score matching and propensity-score inclusive regressions, prenatal alcohol use continues to be significant related with increases in behavior problems, but prenatal smoking by and large ceases to have any significant effects. Discussion: While prenatal smoking has many deleterious outcomes for children, mostly related to low birthweight, it appears that the association between prenatal smoking and behavioral problems among children is largely driven by other confounding factors. On the other hand, results of this study suggest that prenatal alcohol-use may have true physiological/biological effects on the fetus that eventually exacerbate behavior problems. However, it should be noted that none of the methods used can account for all potential confounding factors - especially time-variant ones - hence, there may still remain some estimation bias. It should also be noted that the study suffers from certain shortcomings - namely, behavioral problems as well as prenatal substance-use are all based on mother-reported data, and thus there are concerns about the accuracy of these measures. Hence, there remains scope for further research into this topic using alternate datasets. Implications for Policy: The 1999 United States Surgeon General's Report stated that almost one in five children and adolescents in the U.S. exhibit signs of mental and behavioral disorder. This study suggests that policies aimed at reducing alcohol-use among pregnant women might contribute to reducing the prevalence of such disorders. However, while reducing cigarette use among pregnant women has numerous other health benefits for their children, it may not help reduce the incidence of behavior problems. Copyright © 2007 ICMPE.