The benefits of parental involvement in children’s education have been well established but increasing evidence suggests that overparenting may have adverse effects on children. The question of whether excessive parental involvement hinders children’s academic and psychosocial development warrants further investigations. This study examined the associations of parental educational involvement at home and in school with academic performance and psychological health of 507 Chinese Grade 3 schoolchildren in Hong Kong. Parents reported on their level of involvement in children’s schooling and their children’s psychosocial issues. Children were surveyed to determine their school engagement, and their Chinese language and mathematics attainment was assessed. We also explored the underlying mechanism by testing children’s engagement with school as a mediator of the relationships. Our results showed that home-based parental educational involvement was positively associated with children’s language competence and psychosocial wellbeing, and the associations were linked through engaging children with school. However, the benefits reached a plateau at higher level of parental involvement in children’s learning at home. School-based parental involvement had an indirect effect on children’s prosocial behavior through school engagement. These findings highlight the significance of optimal level of parental involvement in children’s education at home for children’s development. [Copyright of Journal of Child and Family Studies is the property of Springer Science & Business Media. Full article may be available at the publisher's website: http://dx.doi.org/10.1007/s10826-017-1011-2]