Exposure to highly elevated levels of cortisol has been linked with impairments in cognitive capacities in both children and adults. By contrast, moderate levels of cortisol may engender beneficial effects. The main aim of this study was to assess the association between child cortisol levels and neuropsychological development during the second year of life. A population-based birth cohort was established in the city of Sabadell (Catalonia, Spain) as part of the INMA (Environment and Childhood) Project. We assessed the cognitive and psychomotor development at the age of 14 months using the Bayley Scales of Infant Development (BSID). We included 302 children assessed during their second year of life for whom we had information on neuropsychological assessment and measurements of cortisol in saliva. Higher levels of cortisol were associated with better scores in BSID's mental scale. There was no association between cortisol levels and psychomotor test scores. We found a small positive association between duration of breastfeeding and child cortisol levels. This association was only found in boys. The results of this study suggest that moderate levels of cortisol in children could have small beneficial effects on their early neuropsychological development. Copyright © 2013 John Wiley & Sons, Ltd.