Background The pervasiveness of subclinical anxiety in children, highlights the need to identify its neurobiological underpinnings to better inform interventions. Given the now well-established link between aberrant emotion processing and anxiety disorders and yet limited neurobiologically-informed research in this area, this study examined the neural correlates of emotion recognition (ER) in children with sub-clinical anxiety. Method Ninety children (aged 9–11 years) with sub-clinical anxiety, completed an emotion recognition task whilst undergoing functional magnetic resonance imaging. The ER task required participants to match shapes and match emotional faces in the context of shape distractors. Participants also completed the Spence Children's Anxiety Scale (SCAS). Results Greater blood oxygenation level dependent (BOLD) changes associated with ER were observed in the lateral occipital cortex, middle frontal gyrus, superior middle frontal gyrus, inferior frontal gyrus, superior parietal lobule, inferior parietal lobule, superior temporal gyrus, and middle temporal gyrus symmetrically. The clusters also included posterior cingulate cortex, insula, hippocampus, amygdala and cerebellum during matching emotions than those matching shapes. Females showed greater BOLD changes associated with ER than males in the right middle frontal gyrus. The BOLD changes associated with ER in the right middle frontal gyrus and right insula were greater in children with SCAS subscale (physical injury fear) scores in the normal range than those with elevated scores. Discussion The findings in this study implicate the right middle frontal gyrus and insula as key regions in the neurobiological underpinnings of sub-clinical anxiety as they relate to attention impairments in anxious children. Conclusion The results of this study indicate there are gender differences in young participants during emotion processing and provides a neurobiological target for attention impairments in anxious children.