To examine the neurobiological consequences of early institutionalization, the authors recorded event-related potentials (ERPs) from 3 groups of Romanian children--currently institutionalized, previously institutionalized but randomly assigned to foster care, and family-reared children--in response to pictures of happy, angry, fearful, and sad facial expressions of emotion. At 3 assessments (baseline, 30 months, and 42 months), institutionalized children showed markedly smaller amplitudes and longer latencies for the occipital components P1, N170, and P400 compared to family-reared children. By 42 months, ERP amplitudes and latencies of children placed in foster care were intermediate between the institutionalized and family-reared children, suggesting that foster care may be partially effective in ameliorating adverse neural changes caused by institutionalization. The age at which children were placed into foster care was unrelated to their ERP outcomes at 42 months. Facial emotion processing was similar in all 3 groups of children; specifically, fearful faces elicited larger amplitude and longer latency responses than happy faces for the frontocentral components P250 and Nc. These results have important implications for understanding of the role that experience plays in shaping the developing brain.