The present study reports results from the evaluation of the environmental conditions of an orphanage in Managua, Nicaragua and their associations with the children’s development while they were still in the orphanage. The observational measures were obtained by trained assessors (Caregiver Child Socioemotional Relationship Scale or CCSERS and the physical environment measures ITERS and ECERS ).The analysis was conducted at the unit level of the ward, an approached not taken in previous research. The results support the crucial role of the caregiving environment in the development of institutional children. The results of the present study show a positive and strong relationship between the caregiving environment (behavioral environment measured with CCSERRS) and the development of children (measured with BDI) in one Latino orphanage. The changes in the developmental outcomes of the institutionalized children at the post intervention period are not only a product of changes in the physical environment of the wards (e.g., the relationship between the Total ITERS - ECERS score and the total Battelle was positive but non-significant). These changes are more related to the improvement of the caregiver child interactions (the behavioral environment) in the wards. However, the environmental scales (ITERS-ECERS) and the CCERRSS have a positive but not strong association indicating that the physical aspects of environment are associated with the quality of caregiver-child interactions at the level of the wards. Thus both, physical and behavioral environment must be improved in orphanages, but socio-emotional aspects are more influential in the proper development of children. Previous studies had established the relationship between the environment and the development of children but the present study offers evidence at the ward versus the institutional level.