Background <p>Emotion understanding (EU) is a key developmental competence linked to social functioning. However, little is known about its development in Mandarin-speaking children during toddlerhood and the preschool years, or its association with emotion dysregulation. This study examined EU development in children aged 2–6 years using a community sample and explored its relationship with emotion dysregulation.</p> Methods <p>In total, 121 Mandarin-speaking children aged 2–6 years and their parents from community settings in Taiwan participated. Children completed cognitive assessments, the Receptive Vocabulary and Picture Naming subtests of WPPSI-IV, and the Test of Emotion Comprehension–Extended Version (TEC-E). Parents completed the Child Behavior Checklist.</p> Results <p>Children demonstrated significant EU growth between ages 2 and 6 years, consistent with the three-stage sequence proposed by Pons. However, the Desire and Reminder components developed later than expected, suggesting cultural influences. Positive correlations were observed between EU and emotion dysregulation, with the component-scored method more sensitive than the item-scored method in detecting associations.</p> Conclusion <p>Toddlers’ and preschoolers’ level of EU was positively associated with their degree of emotion dysregulation. Clinicians can use children’s EU development to help predict their risk of emotion dysregulation and provide early intervention. Moreover, because cultural effects were inferred from difficulty rankings rather than direct cross-cultural score comparisons, cross-cultural findings should be interpreted with caution.</p>