Inequitable urban environments are associated with toxic stress and altered neural social stress processing that threatens the development of self-regulation. Some children in these environments struggle with early onset externalizing problems that are associated with a variety of negative long-term outcomes. While previous research has linked parenting daily hassles to child externalizing problems, the role of frontal alpha asymmetry (FAA) as a potential modifier of this relationship has scarcely been explored. The present study examined mother-child dyads, most of whom were living in low socioeconomic status households in an urban environment and self-identified as members of racial minority groups. Analyses focused on frustration task electroencephalography (EEG) data from 67 children (mean age = 59.0 months, SD = 2.6). Mothers reported the frequency of their daily parenting hassles and their child’s externalizing problems. Frustration task FAA moderated the relationship between parenting daily hassles and child externalizing problems, but resting FAA did not. More specifically, children with left frontal asymmetry had more externalizing problems as their mothers perceived more hassles in their parenting role, but parenting hassles and externalizing problems were not associated among children with right frontal asymmetry. These findings lend support to the motivational direction hypothesis and capability model of FAA. More generally, this study reveals how individual differences in lateralization of cortical activity in response to a stressor may confer differential susceptibility to child behavioral problems with approach motivation (i.e., left frontal asymmetry) predicting externalizing problems under conditions of parental stress.