Previous studies of face processing in autism suggest abnormalities in anatomical development, functioning and connectivity/coordination of distributed brain systems involved in social cognition, but the spatial sequence and time course of rapid (sub-second) neural responses to emotional facial expressions have not been examined in detail. Source analysis of high-density event-related potentials (ERPs) is an optimal means to examine both the precise temporal profile and spatial location of early electrical brain activity in response to emotionally salient stimuli. Therefore, we recorded 128-channel ERPs from high-functioning males with autism (aged 6–10 years), and age-, sex- and IQ-matched typically developing controls during explicit and implicit processing of emotion from pictures showing happy, angry, fearful, sad and neutral facial expressions. Children with autism showed normal patterns of behavioural and ERP (P1, N170 and P2) responses. However, dipole source analysis revealed that ERP responses relating to face detection (visual cortex) and configural processing of faces (fusiform gyrus), as well as mental state decoding (medial prefrontal lobe), were significantly weaker and/or slower in autism compared with controls during both explicit and implicit emotion-processing tasks. Slower- and larger-amplitude ERP source activity in the parietal somatosensory cortices possibly reflected more effortful compensatory analytical strategies used by the autism group to process facial gender and emotion. Such aberrant neurophysiological processing of facial emotion observed in children with autism within the first 300 ms of stimulus presentation suggests abnormal cortical specialization within social brain networks, which would likely disrupt the development of normal social-cognitive skills.