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In this thesis the relationship between the physical environment of preschool, children and preschool teachers is studied. Children participate in preschool from an early age and thus are expected to find themselves within an institutional framework (Eilard & Tallberg Broman, 2011) early in life. Today preschool as an institution can be seen as a place where childhood to a great extent is spent and created (Halldén, 2007e). The physical environment of preschool can consequently be regarded as a structure within which childhood is institutionalized (Kampmann, 2004). In general the thesis deals with how children are shaped by and shape the physical environment that they spend so much time in during early childhood. The purpose is clarified in the following questions: How does the physical environment of preschool structure and organise the activities of chil-dren? What activities are created in relation to the possibilities and limitations of the physical environment? In what way can the relationship between the invitations of the physical environment, the child’s scope for action, and preschool teachers be seen? To understand the empirical material in the thesis the concept of affordance (J.J.Gibson, 1986) and the activity theory (Leontiev, 1986; Engeström, 1987) has been used. The empirical evidence in the thesis is based on both video observations and interviews. The study was designed as a multiple case study (Stake, 1995), and three preschool classes each formed a case. The study was inspired by ethnography. The significance of seeing the environment as a set of affordances (J.J.Gibson, 1986) is that it, to a greater degree, can lead to children being allowed to discover the invitations to action there are and as a result freedom to act and negotiations can be created in both inside and outside environments. Through this way of thinking a free zone is created in an institutionalised childhood where children through their agency handle and redesign that which was intended to regulate and give structure. As a counterbalance to the institutionalisation of childhood this study contribute to an understanding of children’s individual and collective activities as a free zone in an otherwise controlled and regulated milieu. The contribution of this thesis consists of the study of the physical environment and the importance of the material in forming the child.