Research provides inconclusive results on whether a social gender transition (e.g. name, pronoun, and clothing changes) benefits transgender children or children with a Gender Dysphoria (GD) diagnosis. This study examined the relationship between social transition status and psychological functioning outcomes in a clinical sample of children with a GD diagnosis. Psychological functioning (Child Behavior Checklist; CBCL), the degree of a social transition, general family functioning (GFF), and poor peer relations (PPR) were assessed via parental reports of 54 children (range 5–11 years) from the Hamburg Gender Identity Service (GIS). A multiple linear regression analysis examined the impact of the social transition status on psychological functioning, controlled for gender, age, socioeconomic status (SES), PPR and GFF. Parents reported significantly higher scores for all CBCL scales in comparison to the German age-equivalent norm population. Peer problems and worse family functioning were significantly associated with impaired psychological functioning, whilst the degree of social transition did not significantly predict the outcome. Therefore, claims that gender affirmation through transitioning socially is beneficial for children with GD could not be supported from the present results. Instead, the study highlights the importance of individual social support provided by peers and family, independent of exploring additional possibilities of gender transition during counseling.