Objective: This study was undertaken to clarify how genetic liability and stressful life events interact in the etiology of major depression. Method: Information about stressful life events and onset of major depressive episodes in the past year was collected in a population-based sample of female-female twin pairs including 2,164 individuals, 53,215 person-months of observation, and 492 onsets of depression. Results: Nine 'personal' and three aggregate 'network' stressful events significantly predicted onset of major depression in the month of occurrence, four of which predicted onset with an odds ratio of >10 and were termed 'severe': death of a close relative, assault, serious marital problems, and divorce/breakup. Genetic liability also had a significant impact on risk of onset of depression. For severe stressful events, as well as for 10 of the 12 individual stressful events, the best-fitting model for the joint effect of stressful events and genetic liability on onset of major depression suggested genetic control of sensitivity to the depression-inducing effects of stressful life events. In individuals at lowest genetic risk (monozygotic twin, co-twin unaffected), the probability of onset of major depression per month was predicted to be 0.5% and 6.2%, respectively, for those unexposed and exposed to a severe event. In those at highest genetic risk (monozygotic twin, co-twin affected), these probabilities were 1.1% and 14.6%, respectively. Linear regression analysis indicated significant Genotype by Environment interaction in the prediction of onset of major depression. Conclusions: Genetic factors influence the risk of onset of major depression in part by altering the sensitivity of individuals to the depression-inducing effect of stressful life events.