Growing evidence has linked early trauma with severe psychiatric consequences. Posttraumatic stress disorder (PTSD) is a potentially debilitating mental health condition found among some youth in foster care and foster care alumni. However, the current child welfare practice response has not met the demands in both assessment and intervention. This critical review aims to use the evidence to reshape the child welfare response to trauma in children and adolescents. We begin with research on the psychiatric consequences of child maltreatment and issues related to diagnostic assessment for PTSD. Next, we compare major foster care/alumni studies showing considerably higher rates of PTSD among young foster care recipients and alumni than among nationally comparable groups. To inform practice on childhood trauma, we then summarize current evidence-based interventions showing effectiveness with PTSD. Finally, we address new dimensions, such as gene-environment research, posttraumatic growth, and implications for reshaping child welfare practice and foster care.