It appears that most stars are born in clusters, and that at birth most stars have circumstellar discs which are comparable in size to the separations between the stars. Interactions between neighbouring stars and discs are therefore likely to play a key rôle in determining disc lifetimes, stellar masses, and the separations and eccentricities of binary orbits. Such interactions may also cause fragmentation of the discs, thereby triggering the formation of additional stars.We have carried out a series of simulations of disc-star interactions using an SPH code which treats self-gravity, hydrodynamic and viscous forces. We find that interactions between discs and stars provide a mechanism for removing energy from, or adding energy to, the orbits of the stars, and for truncating the discs. However, capture during such encounters is unlikely to be an important binary formation mechanism.A more significant consequence of such encounters is that they can trigger fragmentation of the disc, via tidally and compressionally induced gravitational instabilities, leading to the formation of additional stars. When the disc-spins and stellar orbits are randomly oriented, encounters lead to the formation of new companions to the original star in 20% of encounters. If most encounters are prograde and coplanar, as suggested by simulations of dynamically-triggered star formation, then new companions are formed in approximately 50% of encounters.