This study focuses on moral work-in-interaction between teachers and children during a circle time episode, focusing on a moral problem related to the children's peer play activities. The data are drawn from ethnographic research combined with video-recordings of routine activities in a Swedish preschool. Using an ethnomethodological conversation analytical approach examining talk-in-interaction in its’ sequential and social context. In the particular case the moral problem concerns a girl’s emotional reactions (i.e. being sad) from being excluded from peer play. The particular problem is dealt with by the teachers through a) holding other children publically accountable and b) making them share the girl’s negative feelings through the telling of hypothetical scenarios. At the same time, the children navigate from a subordinate position and can be seen as doing different forms of moral defense work. In so doing they manifest their own moral agenda, which is different from the teachers’ or the institutional agenda. Thus, the interactional moral work in the circle time episode can be described as an encounter between two worlds or orders. On the one side an institutional order, represented by the teachers, morally fostering children, and on the other side the children´s peer culture, where children learn to use different strategies to handle the moral work of the preschool teachers.