BACKGROUND: Social anxiety disorder (SAD) in youth is associated with significant psychosocial impairments; however, the cognitive and neural mechanisms that maintain it, particularly during childhood and adolescence, remain underexplored. Cognitive models emphasize the role of altered face processing, and neutral facial expressions may be perceived as threatening. Due to their ambiguous nature, contextual cues may play a particularly important role in interpretation. METHODS: We presented neutral child faces paired with social context information varying in valence (negative, neutral, positive) while continuous EEG was recorded. Subjective valence ratings and neural responses (P100, N170, and LPP) were assessed in children and adolescents aged 10-15 years with SAD (n = 53), clinical controls with specific phobias (SP; n = 41), and healthy controls (HC; n = 61). RESULTS: Overall, context information affected both the subjective and neural responses to neutral faces in all children and adolescents, for example, more negative ratings for negatively contextualized faces. Further, participants with SAD generally rated all faces as more negative compared to HCs. Neurally, they showed lower N170 amplitudes compared to both control groups in response to all neutral faces, independent of the context valence. However, only younger children (aged 10-12 years) with SAD showed higher LPP amplitudes than younger HCs. CONCLUSIONS: Processing biases seem to be already present in children and adolescents with SAD, both at the subjective and neural level. Social context information influences neutral face processing but is independent of psychopathology. Future studies examining age effects are needed to investigate whether childhood reflects a particularly sensitive period for the development of processing biases.