This dissertation investigates the neural bases and development of displacement, which is a language property that allows us to communicate about situations outside the "here-and-now." One way to displace from our immediate environment is to project ourselves into the here-and-now point of an alternative actuality. Another form of displacement (modal displacement) involves the postulation of possibilities compatible or incompatible with the actual situation. In this dissertation I report on three studies investigating the neural and developmental bases of modal displacement. The first study consisted of two experiments using magnetoencephalography (MEG) to investigate the neural mechanisms underlying factual and modal language comprehension. The combination of the results from these two experiments suggests that the brain is sensitive to the contrast between fact and possibility rapidly after it is presented, and that discourse situation updating only takes place for factual information. The second part of this dissertation investigated children's developing ability to process counterfactual language, looking at spontaneous production and comprehension. Specifically, I compared the acquisition of counterfactual conditionals with that of counterfactual wishes, as they differ in linguistic complexity. The results of these studies suggest that challenges involved with the form-to-meaning mapping of counterfactuality impact children's performance. Children start to produce the linguistically less complex wishes before counterfactual conditionals, and perform better on wishes in comprehension tasks. This dissertation ends with a discussion illustrating how the fields of cognitive neuroscience and first language acquisition can inform each other and help us build towards a broader understanding of the cognitive ability of human language displacement. [The dissertation citations contained here are published with the permission of ProQuest LLC. Further reproduction is prohibited without permission. Copies of dissertations may be obtained by Telephone (800) 1-800-521-0600. Web page: http://bibliotheek.ehb.be:2222/en-US/products/dissertations/individuals.shtml.]