Reasoning about others’ emotions is a crucial component in social cognition. Here, we tested the ability of preschool children to reason about an agent’s emotions following an unexpected outcome. Importantly, we controlled for the actual payoff of the outcome, while varying the prior expectation of the agents. Five year olds, but not four year olds, were able to correctly judge an agent’s emotions following an unexpected outcome (Experiment 1). However, when explicitly provided with the agent’s expectations, four year old children were then able to correctly judge the agent’s feelings (Experiment 2). Thus, our results suggest that the ability to reason about emotions given outcomes and prior expectations develops by 4 years of age, while the ability to spontaneously infer such prior expectations develops soon after. We discuss our results in light of the developmental literature on emotion understanding and counter- factual reasoning.