Early-life adversity (ELA) is one of the major risk factors for serious mental and physical health risks later in life. ELA has been associated with dysfunctional neurodevelopment, especially in brain structures such as the hippocampus, and with dysfunction of the stress system, including the hypothalamic-pituitary-adrenal (HPA) axis. Children who have experienced ELA are also more likely to suffer from mental health disorders such as depression later in life. The exact interplay of aberrant neurodevelopment and HPA axis dysfunction as risks for psychopathology is not yet clear. We investigated volume differences in the bilateral hippocampus and in stress-sensitive hippocampal subfields, behavior problems, and diurnal cortisol activity in 24 children who had experienced documented ELA (including out-of-home placement) in a circumscribed duration of adversity only in their first 3 years of life in comparison to data on 25 control children raised by their biological parents. Hippocampal volumes and stress-sensitive hippocampal subfields (Cornu ammonis [CA]1, CA3, and the granule-cell layer of the dentate gyrus [GCL-DG]) were significantly smaller in children who had experienced ELA, taking psychiatric diagnoses and dimensional psychopathological symptoms into account. ELA moderated the relationship between left hippocampal volume and cortisol: in the control group, hippocampal volumes were not related to diurnal cortisol, while in ELA children, a positive linear relationship between left hippocampal volume and diurnal cortisol was present. Our findings show that ELA is associated with altered development of the hippocampus, and an altered relationship between hippocampal volume and HPA axis activity in youth in care, even after they have lived in stable and caring foster family environments for years. Altered hippocampal development after ELA could thus be associated with a risk phenotype for the development of psychiatric disorders later in life.