Contemporary active-EEG and EEG-imaging methods show particular promise for studying the development of action planning and social-action representation in infancy and early childhood. Action-related mu suppression was measured in eleven 3-year-old children and their mothers during a 'live,' largely unscripted social interaction. High-density EEG was recorded from children and synchronized with motion-captured records of children's and mothers' hand actions, and with video recordings. Independent Component Analysis (ICA) was used to separate brain and non-brain source signals in toddlers' EEG records. EEG source dynamics were compared across three kinds of epochs: toddlers' own actions (execution), mothers' actions (observation), and between-turn intervals (no action). Mu (6-9 Hz) power was suppressed in left and right somatomotor cortex during both action execution and observation, as reflected by independent components of individual children's EEG data. These mu rhythm components were accompanied by beta-harmonic (~16 Hz) suppression, similar to findings from adults. The toddlers' power spectrum and scalp density projections provide converging evidence of adult-like musuppression features. Mu-suppression components' source locations were modeled using an age-specific 4-layer forward head model. Putative sources clustered around somatosensory cortex, near the hand/arm region. The results demonstrate that action-locked, event-related EEG dynamics can be measured, and sourceresolved, from toddlers during social interactions with relatively unrestricted social behaviors.