Event-related potential studies of reward processing have consistently identified the feedback negativity (FN), an early neural response that differentiates feedback indicating unfavorable versus favorable outcomes. Several important questions remain, however, about the nature of this response. In this study, the FN was recorded in response to monetary gains and losses during a laboratory gambling task, and temporospatial principal components analysis was used to separate the FN from overlapping responses. The FN was identified as a positive deflection at frontocentral recording sites that was enhanced for rewards compared with nonrewards. Furthermore, source localization techniques identified the striatum as a likely neural generator. These data indicate that this apparent FN reflects increased striatal activation in response to favorable outcomes that is reduced or absent for unfavorable outcomes, thereby providing unique information about the timing and nature of basal ganglia activity related to reward processing. Hum Brain Mapp, 2011. © 2011 Wiley Periodicals, Inc.