Background: The home environment is reported to contribute significantly to children's developing cognitive skills. However, it is not yet evident whether this role prevails in the context of extreme poverty and frequent ill-health. We therefore investigated the role of the home environment in Ugandan children taking into account the frequent infections and extreme poverty in which they lived. Methods: Cognitive abilities of 163 5-year-old children were assessed. Home environments of these children, their health status and family socioeconomic status (SES) were assessed respectively using the EC-HOME, anthropometry and illnesses, and traditional SES measures. Structural equation analyses compared five models on the influence of the home environment, SES, and child health on the cognitive scores. Results: The model in which the home environment mediates the combined influence of SES and child health on cognitive performance showed a particularly good fit to the data compared with the four alternative models, i.e. those in which the HOME, SES and health independently influence cognitive performance. Conclusions: Home environments providing cognitive stimulation can enable children to overcome effects of major adverse life experiences on cognitive development.