Although Electroencephalography (EEG) source localization is being widely used in adults, this promising technique has not yet been applied to newborns because of technical difficulties, such as lack of data concerning the newborn skull conductivity, thickness, and homogeneity. Using a new type of EEG headcap molded on each baby's head, we aimed to determine whether this technique could be adapted to neonates, and to evaluate the importance of these technical difficulties. We carried out EEG source reconstruction of the recordings of five neonates using dipole fit algorithm. We used four different head models for each neonate, obtained from individual MRI scans: normal skull thickness and conductivity of 0.0042 S/m; normal thickness and conductivity of 0.33 S/m; increased thickness and conductivity of 0.0042 S/m; and normal thickness and conductivity with a modeled bregma fontanel. Dipole locations were consistent with MRI and clinical data. The mean difference between the dipole locations in the 0.0042 and the 0.33 S/m skull layer models was 11.6 ± 2.5 mm, with an average 29.7% decrease in magnitude for the 0.33 S/m model but no significant changes for the dipoles orientation. Skull layer thickness had a large influence on magnitude, but no significant effect on position and orientation. The mean difference between the dipole locations induced by the modeled fontanel was 2.0 ± 2.1 mm, with an average 2.1% increase in magnitude. Our results show that EEG source localization is feasible in neonates. With further development, the technique may prove useful for neurological evaluation of neonates. Hum Brain Mapp, 2008. © 2007 Wiley-Liss, Inc.