The present study investigated the potential protective role of components of emotion knowledge (i.e., emotion recognition, situation knowledge) in the links between young children's shyness and indices of socio-emotional functioning. Participants were n = 163 children (82 boys and 81 girls) aged 23-77 months ([mean] = 53.29, SD = 14.48), recruited from preschools in Italy. Parents provided ratings of child shyness and teachers rated children's socio-emotional functioning at preschool (i.e., social competence, anxiety-withdrawal, peer rejection). Children were also interviewed to assess their abilities to recognize facial emotional expressions and identify situations that affect emotions. Among the results, shyness was positively related to anxiety-withdrawal and peer rejection. In addition, emotion recognition was found to significantly moderate the links between shyness and preschool socio-emotional functioning, appearing to serve a buffering role. For example, at lower levels of emotion recognition, shyness was positively associated with both anxiety-withdrawal and rejection by peers, but at higher levels of emotion recognition, these associations were attenuated. Results are discussed in terms of the protective role of emotion recognition in promoting shy children's positive socio-emotional functioning within the classroom context. (author abstract)