To examine the predictive validity of an alternative to the DSM-IV for diagnosing posttraumatic stress disorder (PTSD) in preschool children and prospectively explore the course of PTSD symptomatology. Sixty-two traumatized children, ages 20 months through 6 years, were assessed three times in 2 years with caregiver diagnostic interviews. PTSD diagnosis at visit 1 significantly predicted degree of functional impairment 1 and 2 years later and predicted PTSD diagnosis 2 years later but not 1 year later. The lack of 1-year diagnostic continuity may be explained by children with new traumas. Unexpectedly, overall PTSD symptoms did not remit over time, regardless of community treatment; however, reexperiencing symptoms decreased and avoidance/numbing symptoms increased with time, with avoidance/numbing symptoms increasing at a faster rate in children with PTSD at visit 1. The previous finding that arousal may cause emotional numbing was not replicated. Significantly more children were functionally impaired at visits 2 (48.9%) and 3 (74.3%) than were diagnosed with PTSD (23.4% and 22.9%, respectively). This study demonstrates predictive validity for the alternative method of diagnosing PTSD in preschool children. The unremitting course of PTSD symptomatology in preschool children and rates of impairment that are higher than rates of diagnosis indicate the need for efficacious treatment.