BACKGROUND: Early childhood depression is associated with anhedonia and reduced event-related potential (ERP) responses to rewarding or pleasant stimuli. Whether these neural measures are indicators of target engagement or treatment outcome is not yet known. METHODS: We measured ERP responses to win and loss feedback in a guessing task and to pleasant versus neutral pictures in young (4.0-6.9 years of age) depressed children before and after randomization to either 18 weeks of Parent-Child Interaction Therapy-Emotion Development (PCIT-ED) treatment or waitlist (WL) control condition. RESULTS: Analyses included reward positivity (RewP) data from 118 children randomized to PCIT-ED treatment (n = 60) or WL control condition (n = 58) at baseline and late positive potential (LPP) data from 99 children (44 PCIT-ED treatment vs. 55 WL control condition) at baseline. Children in the PCIT-ED group showed a greater reduction in anhedonia (F1,103 = 10.32, p = .002, partial η2 = .09). RewP reward responses increased more (F1,87 = 5.45, p = .02, partial η2 = .06) for PCIT-ED and a greater change in RewP was associated with a greater reduction in major depressive disorder symptoms (r = -.24, p = .05). Baseline RewP did not predict treatment change. LPPs to positive pictures did not change across treatment, but greater baseline LPPs to positive pictures predicted a higher likelihood of remission from major depressive disorder in the PCIT-ED group (B = 0.14; SE = 0.07; odds ratio = 1.15; p = .03). CONCLUSIONS: The ERP reward response improved in young children with depression during a treatment designed to enhance emotion development, providing evidence of target engagement of the neural systems associated with reward. Further, greater baseline LPP responses to positive pictures were associated with a greater reduction in depression, suggesting that this ERP measure can predict which children are most likely to respond to treatment.