Early-life trauma is one of the strongest risk factors for later emotional psychopathology. Although research in adults highlights that childhood trauma predicts deficits in emotion regulation that persist decades later, it is unknown whether neural and behavioral changes that may precipitate illness are evident during formative, developmental years. This study examined whether automatic regulation of emotional conflict is perturbed in a high-risk urban sample of trauma-exposed children and adolescents. A total of 14 trauma-exposed and 16 age-, sex-, and IQ-matched comparison youth underwent functional MRI while performing an emotional conflict task that involved categorizing facial affect while ignoring an overlying emotion word. Engagement of the conflict regulation system was evaluated at neural and behavioral levels. Results showed that trauma-exposed youth failed to dampen dorsolateral prefrontal cortex activity and engage amygdala-pregenual cingulate inhibitory circuitry during the regulation of emotional conflict, and were less able to regulate emotional conflict. In addition, trauma-exposed youth showed greater conflict-related amygdala reactivity that was associated with diminished levels of trait reward sensitivity. These data point to a trauma-related deficit in automatic regulation of emotional processing, and increase in sensitivity to emotional conflict in neural systems implicated in threat detection. Aberrant amygdala response to emotional conflict was related to diminished reward sensitivity that is emerging as a critical stress-susceptibility trait that may contribute to the emergence of mental illness during adolescence. These results suggest that deficits in conflict regulation for emotional material may underlie heightened risk for psychopathology in individuals that endure early-life trauma.