External feedback provides essential information for successful learning. Feedback is especially important for learning in early childhood, as toddlers strongly rely on external signals to determine the consequences of their actions. In adults, many electrophysiological studies have elucidated feedback processes using a neural marker called the feedback-related negativity (FRN). The neural generator of the FRN is assumed to be the ACC, located in medial frontal cortex. As frontal brain regions are the latest to mature during brain development, it is unclear when in early childhood a functional feedback system develops. Is feedback differentiated on a neural level in toddlers and in how far is neural feedback processing related to children's behavioral adjustment? In an EEG experiment, we addressed these questions by measuring the brain activity and behavioral performance of 2.5-year-old toddlers while they played a feedback-guided game on a touchscreen. Electrophysiological results show differential brain activity for feedback with a more negative deflection for incorrect than correct outcomes, resembling the adult FRN. This provides the first neural evidence for feedback processing in toddlers. Notably, FRN amplitudes were predictive of adaptive behavior: the stronger the differential brain activity for feedback, the better the toddlers' adaptive performance during the game. Thus, already in early childhood toddlers' feedback-guided performance directly relates to the functionality of their neural feedback processing. Implications for early feedback-based learning as well as structural and functional brain development are discussed.