Children's understanding of counterfactual emotions such as regret and relief develops relatively late compared to their ability to imagine counterfactual worlds. We tested whether a late development in counterfactual thinking: understanding counterfactuals as possibilities, underpinned children's understanding of regret. Thirty 5- and 6-year-olds completed tasks assessing counterfactual thinking and understanding regret. Performance on the counterfactual task was better than that on the regret task. We suggest that thinking about counterfactuals as possibilities is a necessary but not sufficient cognitive development in children's understanding of regret. We discuss how other developments in counterfactual thinking may underpin children's emotional understanding.