Background: Research suggests that institutional care has long-lasting effects on children. However, no study has longitudinally studied infants in an institution and their subsequent development at age four. Methods: Sixty-one adopted children aged four years who had spent their first two years of life in an institution were compared to 39 children reared in their own two-parent families. Cognitive development, security of attachment, shyness, children's emotional understanding and behavioural problems were examined in both groups. Parental health and stress were also assessed. Results: At four years adopted children still had lower scores on cognitive development, were less secure, and less able to understand emotions than family-reared children. Children with a secure attachment type in infancy were found to be less secure at age four, compared with those who were classified in infancy as having an insecure attachment type. Their physical development had recovered, they were less shy, had no behavioural problems and no problems in the relationship with their teacher. Conclusions: Early residential group care has long-lasting effects on important socio-emotional and cognitive aspects of preschool children's development.