Developmental research has demonstrated the harmful effects of peer rejection during adolescence; however, the neural mechanisms responsible for this salience remain unexplored. In this study, 23 adolescents were excluded during a ball-tossing game in which they believed they were playing with two other adolescents during an fMRI scan; in reality, participants played with a preset computer program. Afterwards, participants reported their exclusion-related distress and rejection sensitivity, and parents reported participants’ interpersonal competence. Similar to findings in adults, during social exclusion adolescents displayed insular activity that was positively related to self-reported distress, and right ventrolateral prefrontal activity that was negatively related to self-reported distress. Findings unique to adolescents indicated that activity in the subgenual anterior cingulate cortex (subACC) related to greater distress, and that activity in the ventral striatum related to less distress and appeared to play a role in regulating activity in the subACC and other regions involved in emotional distress. Finally, adolescents with higher rejection sensitivity and interpersonal competence scores displayed greater neural evidence of emotional distress, and adolescents with higher interpersonal competence scores also displayed greater neural evidence of regulation, perhaps suggesting that adolescents who are vigilant regarding peer acceptance may be most sensitive to rejection experiences.