Successful emotion regulation facilitates children's coping with everyday stress. It develops rapidly in the early preschool period. However, no work has been done to investigate the potential buffering role of emotion regulation from cumulative physiological effects of stress. In this study, we examined hair cortisol concentration (HCC), an early marker of chronic physiological stress, socioeconomic status (SES), parental sensitivity, and emotion regulation and reactivity in a sample of 3.5‐year‐old children (N = 86). Emotion regulation and emotional reactivity were independent of child HCC. However, emotion regulation moderated the relationship between parent and child HCC. For children with better emotion regulation, there was no association between parent and child HCC, suggesting that emotion regulation skills buffered the transgenerational effects of chronic physiological stress. Emotional reactivity moderated the relationship between SES and child HCC, and attenuated the association between parental sensitivity and child HCC. Taken together, these findings demonstrate that children who were less emotionally reactive were less susceptible to their environments. Results provide support that child emotion regulation and emotional reactivity can reduce or strengthen the relationship between established risk factors and levels of chronic physiological stress in early childhood.