This study investigated whether adolescent vagal stress reactivity to parent--adolescent conflict moderates the effects of family instability on the development of adolescent behavioral problems. Participants were 192 adolescents (M age = 12.4) and their parents across 2 measurement occasions. Results indicated that the interaction between family instability and vagal stress reactivity significantly predicted change in externalizing problems. Greater family instability was associated with increases in externalizing problems only for adolescents showing greater vagal suppression (i.e., higher vagal reactivity) during a laboratory triadic family conflict discussion. Further tests suggested the interaction was consistent with diathesis stress, such that adolescents with higher vagal stress reactivity show higher increases in externalizing problems under high instability but not lower increases in externalizing symptoms with low family instability. Findings indicate disruptions in the proximal rearing contexts may differentially influence development for adolescents, but the impact may differ as a function of stress reactivity.