From ESRI help:
.NET Framework
.NET 3.5 SP1 is a minimum requirement for any .NET development with ArcGIS 10.1. In fact, it is a prerequisite for installing ArcGIS for Desktop or ArcGIS Engine for Windows.
Additionally, you can use and develop against the .NET 4.0 Framework. If doing so, you need to install the 4.0 Framework in addition to 3.5 SP1, since 4.0 does not include 3.5. For more information on working with .NET 4.0, see .NET 4.0 support for ArcGIS 10.1 Desktop and Engine developers.
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