Background: An abundance of cross-sectional research links inadequate sleep with poor emotional health, but experimental studies in children are rare. Further, the impact of sleep loss is not uniform across individuals and preexisting anxiety might potentiate the effects of poor sleep on children's emotional functioning. Methods: A sample of 53 children (7-11 years, M = 9.0; 56% female) completed multimodal, assessments in the laboratory when rested and after two nights of sleep restriction (7 and 6 hr in bed, respectively). Sleep was monitored with polysomnography and actigraphy. Subjective reports of affect and arousal, psychophysiological reactivity and regulation, and objective emotional expression were examined during two emotional processing tasks, including one where children were asked to suppress their emotional responses. Results: After sleep restriction, deleterious alterations were observed in children's affect, emotional arousal, facial expressions, and emotion regulation. These effects were primarily detected in response to positive emotional stimuli. The presence of anxiety symptoms moderated most alterations in emotional processing observed after sleep restriction. Conclusions: Results suggest inadequate sleep preferentially impacts positive compared to negative emotion in prepubertal children and that pre-existing anxiety symptoms amplify these effects. Implications for children's everyday socioemotional lives and long-term affective risk are highlighted.