Effective emotion regulation is essential for children's positive development. Polyvagal theory provides a framework for understanding how parasympathetic regulation of cardiac activity contributes to children's adaptive versus maladaptive functioning. Maintenance of cardiac respiratory sinus arrhythmia (RSA) under social challenge should support emotion regulation and behavioral adjustment. Children's effective parasympathetic regulation and behavioral adjustment should be supported by appropriate parental socialization. These proposals were evaluated in a short-term longitudinal study of 94 preschool-aged children. Parenting and basal RSA were measured at home, then 6-10 months later behavioral adjustment and RSA in lab baseline and socially challenging contexts were measured. Children with relatively higher RSA in social challenge than at baseline (DeltaRSA) had fewer internalizing problems (IP) and externalizing problems (EP), and better behavioral self-regulation (SR). Mothers who used more negative control had children with lower DeltaRSA, more IP and EP, and less SR. Structural equation modeling showed that vagal regulation mediated associations between maternal negative control and children's adjustment; maternal negative control did not predict EP or SR after accounting for DeltaRSA. Associations were consistent across boys and girls, with one exception: Higher DeltaRSA was significantly associated with fewer EP in boys only. These findings suggest that the practical significance of physiological regulation might be best revealed in ecologically valid procedures, and that children's physiological mechanisms of emotion regulation are shaped by their experiences of parental socialization.