Early adversity is associated with biological and behavioral dysregulation in early childhood. We examined whether early adversity (i.e., poverty and involvement with child protective services [CPS]) had an indirect effect on externalizing behavior through HPA axis dysregulation, specifically blunted diurnal cortisol patterns. Participants included 94 children between the ages of 3.94 and 6.52 years old, who had a history of CPS involvement (n = 53) or no history of CPS involvement (n = 41). Cortisol samples were collected at wake-up and bedtime across 3 days, and parent-reported externalizing behavior was assessed using the Child Behavior Checklist. Results showed that history of CPS involvement and poverty were associated with blunted cortisol patterns, which in turn led to elevated externalizing behavior. The indirect effect of CPS involvement on externalizing behavior through blunted cortisol was significant, whereas the indirect effect of poverty on externalizing behavior was nonsignificant. Findings add to our understanding of neurobiological mechanisms linking early adversity to psychopathology. © 2015 Wiley Periodicals, Inc. Dev Psychobiol 57: 935–947, 2015.