Depressive symptomatology is associated with impaired recognition of emotion. Previous investigations have predominantly focused on emotion recognition of static facial expressions neglecting the influence of social interaction and critical contextual factors. In the current study, we investigated how youth and maternal symptoms of depression may be associated with emotion recognition biases during familial interactions across distinct contextual settings. Further, we explored if an individual's current emotional state may account for youth and maternal emotion recognition biases. Mother-adolescent dyads (N = 128) completed measures of depressive symptomatology and participated in three family interactions, each designed to elicit distinct emotions. Mothers and youth completed state affect ratings pertaining to self and other at the conclusion of each interaction task. Using multiple regression, depressive symptoms in both mothers and adolescents were associated with biased recognition of both positive affect (i.e., happy, excited) and negative affect (i.e., sadness, anger, frustration); however, this bias emerged primarily in contexts with a less strong emotional signal. Using actor-partner interdependence models, results suggested that youth's own state affect accounted for depression-related biases in their recognition of maternal affect. State affect did not function similarly in explaining depression-related biases for maternal recognition of adolescent emotion. Together these findings suggest a similar negative bias in emotion recognition associated with depressive symptoms in both adolescents and mothers in real-life situations, albeit potentially driven by different mechanisms.