Background Significant disruption in caregiving is associated with increased internalizing symptoms, most notably heightened separation anxiety symptoms during childhood. It is also associated with altered functional development of the amygdala, a neurobiological correlate of anxious behavior. However, much less is known about how functional alterations of amygdala predict individual differences in anxiety. Here, we probed amygdala function following institutional caregiving using very subtle social‐affective stimuli (trustworthy and untrustworthy faces), which typically result in large differences in amygdala signal, and change in separation anxiety behaviors over a 2‐year period. We hypothesized that the degree of differentiation of amygdala signal to trustworthy versus untrustworthy face stimuli would predict separation anxiety symptoms. Methods Seventy‐four youths mean (SD) age = 9.7 years (2.64) with and without previous institutional care, who were all living in families at the time of testing, participated in an fMRI task designed to examine differential amygdala response to trustworthy versus untrustworthy faces. Parents reported on their children's separation anxiety symptoms at the time of scan and again 2 years later. Results Previous institutional care was associated with diminished amygdala signal differences and behavioral differences to the contrast of untrustworthy and trustworthy faces. Diminished differentiation of these stimuli types predicted more severe separation anxiety symptoms 2 years later. Older age at adoption was associated with diminished differentiation of amygdala responses. Conclusions A history of institutional care is associated with reduced differential amygdala responses to social‐affective cues of trustworthiness that are typically exhibited by comparison samples. Individual differences in the degree of amygdala differential responding to these cues predict the severity of separation anxiety symptoms over a 2‐year period. These findings provide a biological mechanism to explain the associations between early caregiving adversity and individual differences in internalizing symptomology during development, thereby contributing to individualized predictions of future clinical outcomes.