Deaf and hard of hearing school-aged children are at risk for delayed development of emotion understanding; however, little is known about this during the preschool years. We compared the level of emotion understanding in a group of 35 4-5-year-old children who use hearing aids to that of 130 children with typical hearing. Moreover, we investigated the parents' perception of their child's level of emotion understanding. Children were assessed with the Test of Emotion Comprehension. Parents were presented with the same test and asked to guess what their child answered on each item. The results showed that children with hearing loss performed at the same level as typically hearing children, despite having lower vocabulary scores. Parents of children with hearing loss were more accurate in their estimations of their child's competence, and higher accuracy was associated with better emotion understanding. These findings may have implications for early intervention planning.