Background Atopic dermatitis is the most common manifestation of atopy in young children. The incidence has increased in the last decades in the world, and changes in microbial and environmental exposures have been implicated, but the contributing factors remain elusive. Methods We comprehensively assessed the relative contributions of microbial and environmental factors on atopic dermatitis risk in a cohort of 2-year-old Finnish children using a prospective observational study utilising the HELMi longitudinal birth (N=893). We included regular electronic questionnaires on health, home life, family habits, and other infant background variables. Faecal samples were collected at 3, 6, and 12 months and home dust samples at 2 years. Bacterial and fungal compositions were determined with 16S and ITS rRNA amplicon sequencing. Results The strongest associations with atopic dermatitis were gut microbial exposure in the first 6 months of age and home dust microbiota, explaining 19.3 and 16.3% of the variance, respectively. The contributions of air quality and home were greater than genetics and the environment. Conclusions The mcrobial composition in gut and indoor dust in early life are associated with atopic dermatitis development, supporting the role of microbes in immune system education. We did not find support for the hypothesis that increased exposure to environmental microbes would be beneficial. Therefore, the focus should be placed on supporting a healthy gut microbiota in the first months of life.