Early-life adversity is associated with elevated risk for a wide range of mental disorders across the lifespan, including those that involve disruptions in positive emotionality. Although extensive research has evaluated heightened negative emotionality and threat processing as developmental mechanisms linking early-life adversity with mental health problems, emerging evidence suggests that positive emotions play an integral, but complex, role in the association of early-life adversity with psychopathology. This chapter identifies two pathways through which positive emotion influences risk for psychopathology following early-life adversity. First, experiences of early-life adversity may alter the development of the “positive valence system”, which in turn increases risk for psychopathology. Second, the association between adversity and psychopathology may vary as a function of individual differences in positive emotionality. We consider how the development of positive emotionality—measured at psychological, behavioral and neurobiological levels—may be altered by early-life adversity, creating a diathesis for psychopathology. We additionally review evidence for the role of positive emotion, measured at multiple levels, as a protective factor that buffers against the adverse impacts of adversity. In integrating these two roles, it is proposed that characteristics of environmental adversity, including developmental timing, duration, and type of adversity, may differentially impact the development of positive emotionality, leading to a better understanding of risks associated with specific adverse experiences. Methodological issues regarding the measurement of adverse environments as well as implications for early intervention and treatment are discussed.