Research Findings: The ability to manage emotions is thought to be important for regulating stress at a physiological level, yet no prior published studies have examined young children's emotion understanding or knowledge in relation to the stress hormone cortisol. The present study investigated the statistical relation between emotion knowledge (EK) and cortisol levels for 307 young children ages 3-5 years who attended Head Start preschool, and their primary caregivers. All of the child participants faced economic hardship and 80% were Black, Indigenous, and People of Color (BIPOC) and thereby positioned to experience systemic racism. At the start of the preschool year, EK, or understanding of emotions, was assessed using a well-validated emotion matching task and basal cortisol levels were measured via salivary assay. Results of a multiple linear regression analysis revealed that, after accounting for demographic covariates, greater EK was associated with lower cortisol. Practice or Policy: The finding that EK relates to cortisol levels in early childhood highlights the importance of addressing emotional competence in early intervention programs. Notably, the relationship may be bidirectional and reducing stress levels also may facilitate advancing young children's emotion understanding. Interventions that promote EK and reduce stress levels may advance overall school readiness.