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The rapid transition of state Medicaid beneficiaries into fully capitated managed care plans requires a special focus on children with chronic or disabling conditions, who often depend on numerous pediatric physicians and other specialty services for health care and related services. Because managed care arrangements for this population are growing in popularity nationwide, it is important that states craft managed care contracts to address the unique needs of children with complex physical, developmental, and mental health problems. Based on the research reported in this article, in-depth interviews with state Medicaid agency staff, interviews with medical directors and administrators of managed care plans serving Medicaid recipients, and input from experts in pediatrics and managed care, a set of recommendations is made for tailoring managed care contracts to meet the needs of this vulnerable group of children. Six contracting elements that should be adopted by state Medicaid agencies include (1) clarifying the specificity of pediatric benefits, (2) defining appropriate pediatric provider capacity requirements, (3) developing a medical necessity standard specific to children, (4) identifying pediatric quality-of-care measures, (5) setting appropriate pediatric capitation rates, and (6) creating incentives for high-quality pediatric care. Nine approaches that should be adopted by managed care practices interested in providing high-quality care for children with special needs also are identified. These include (1) ensuring that assigned primary care providers have appropriate training and experience, (2) offering support systems for primary care practices, (3) providing specialty consultation for primary care providers, (4) establishing arrangements for the comanagement of primary and specialty pediatric services, (5) arranging for comprehensive care coordination, (6) establishing flexible service authorization policies, (7) implementing provider profiling systems that adjust for pediatric case mix, (8) creating financial incentives for serving children with special needs, and (9) encouraging family involvement in plan operations. Implementing these changes to managed care contracting could have a major impact on the quality and comprehensiveness of health care received by children with special needs. Successful implementation, however, requires strong support from both state Medicaid agencies and the managed care plans dedicated to serving this population.