Background Children raised in institutions are at increased risk of developing internalizing and externalizing problems. However, not all children raised in institutions develop psychopathology. Deficits in error monitoring may be one risk pathway for children with a history of institutionalization given that these skills are related to both internalizing and externalizing psychiatric disorders. Error monitoring and the neural circuitry that supports it have a protracted developmental time course and are highly susceptible to the effects of adversity. As such, they may play an important moderating role between a history of institutional rearing and subsequent psychopathology. Methods We investigated the impact of psychosocial deprivation on behavioral and neural responses (event‐related potentials: ERPs) to a Flanker task assessing error monitoring and the relations between these measures and psychopathology for 12‐year‐old children in the Bucharest Early Intervention Project (BEIP). The BEIP involves two groups of institutionalized children randomly assigned in infancy to receive either a foster care intervention (FCG) or care as usual (CAUG). Results Children who experienced institutional care, particularly those in the CAUG, showed perturbed behavioral performance and ERPs on the Flanker task. Additionally, an ERP measure of error monitoring [error‐related negativity (ERN)] moderated the relations between time spent in institutions and externalizing and ADHD behaviors. When the amplitude of the ERN was smaller, time spent in institutional care was positively related to ADHD and externalizing behaviors, whereas time spent in institutions was unrelated to externalizing problems when children evidenced a larger ERN. Neural correlates of error monitoring did not moderate the relations between time spent in institutionalized care and internalizing behaviors. Conclusions Exposure to institutional care early in life may affect brain circuitry associated with error monitoring. Perturbations in this neural circuitry in combination with psychosocial deprivation are possibly a risk pathway associated with the development of externalizing and ADHD problems.