Gentle encouragement to approach appears to reduce risk for anxiety and is commonly incorporated into parenting interventions for inhibited preschoolers, yet little is known regarding whether gentle encouragement facilitates in-the-moment regulation as shy or inhibited children face social novelty, particularly during the toddler period. The current study used a sample of 55 temperamentally shy toddlers (21–24 months old) to examine toddler regulation in novel social contexts in relation to parental gentle encouragement to engage. Contexts included low-threat social novelty (i.e., a clown and puppets) and moderately threatening social novelty (i.e., strangers). Using an experimental design, parents were randomly assigned to provide behaviors thought to represent gentle encouragement: warm responsiveness to toddler fear and encouragement of toddler autonomy, prompt to engage, both warmth and prompt, or remaining uninvolved (no-encouragement control). Relative to toddlers in the no-encouragement control condition, toddlers whose parents were instructed to provide warmth showed less fear and more engagement in moderately threatening social contexts, and toddlers whose parents were instructed to provide both warmth and prompts showed greater suppression of respiratory sinus arrhythmia in low-threat social contexts. Findings suggest that parental gentle encouragement may promote regulated responses in social contexts in shy toddlers. Encouragement of toddler autonomy and warm responsiveness to toddlers in particular may help shy toddlers to engage with, rather than withdraw from, new people.