Impoverished early care environments are associated with developmental deficits in children raised in institutional settings. Despite the accumulation of evidence regarding deficits in general cognitive functioning in this population, less is known about the impact of institutionalization on language development at the level of brain and behavior. We examined language outcomes in young adults and adolescents raised in institutions (n = 23) as compared to their socioeconomic status and age peers raised in biological families (n = 24) using a behavioral language assessment and linguistic event-related potentials (ERPs). Controlling for intelligence, adults with a history of institutionalization demonstrated deficits in lexical and grammatical development and spelling. Analyses of ERP data revealed significant group differences in the dynamic processing of linguistic stimuli. Adults with a history of institutionalization displayed reduced neural sensitivity to violations of word expectancy, leading to reduced condition effects for temporo-spatial factors that tentatively corresponded to the N200, P300/N400, and phonological mismatch negativity. The results suggest that language is a vulnerable domain in adults with a history of institutionalization, the deficits in which are not explained by general developmental delays, and point to the pivotal role of early linguistic environment in the development of the neural networks involved in language processing.