Although inhibited behavior problems are prevalent in childhood, relatively little is known about the intrinsic and extrinsic factors that predict a child's ability to regulate inhibited behavior during fear- and anxiety-provoking tasks. Inhibited behavior may be linked to both disruptions in avoidance-related processing of aversive stimuli and in approach-related processing of appetitive stimuli, but previous findings are contradictory and rarely integrate consideration of the socialization context. The current exploratory study used a novel combination of neurophysiological and observation-based methods to examine whether a neurophysiological measure sensitive to approach- and avoidance-oriented emotional processing, the late positive potential (LPP), interacted with observed approach- (promotion) and avoidance- (prevention) oriented parenting practices to predict children's observed inhibited behavior. Participants were 5- to 7-year-old (N = 32) typically-developing children (M = 75.72 months, SD = 6.01). Electroencephalography was continuously recorded while children viewed aversive, appetitive, or neutral images, and the LPP was generated to each picture type separately. Promotion and prevention parenting were observed during an emotional challenge with the child. Child inhibited behavior was observed during a fear and a social evaluation task. As predicted, larger LPPs to aversive images predicted more inhibited behavior during both tasks, but only when parents demonstrated low promotion. In contrast, larger LPPs to appetitive images predicted less inhibited behavior during the social evaluative task, but only when parents demonstrated high promotion; children of high promotion parents showing smaller LPPs to appetitive images showed the greatest inhibition. Parent-child goodness-of-fit and the LPP as a neural biomarker for emotional processes related to inhibited behavior are discussed.