An essential component of youths' successful development is learning to appropriately respond to emotions, including the ability to recognize, identify, and describe one's feelings. Such emotional competence is thought to arise through the parent-child relationship. Yet, the mechanisms by which parents transmit emotional competence to their children are difficult to measure because they are often implicit, idiosyncratic, and not easily articulated by parents or children. In the current study, we used a multifaceted approach that went beyond self-report measures and examined whether parental neural sensitivity to emotions predicted their child's emotional competence. Twenty-two adolescent-parent dyads completed an fMRI scan during which they labeled the emotional expressions of negatively valenced faces. Results indicate that parents who recruited the amygdala, VLPFC, and brain regions involved in mentalizing (i.e., inferring others' emotional states) had adolescent children with greater emotional competence. These results held after controlling for parents' self-reports of emotional expressivity and adolescents' self-reports of the warmth and support of their parent relationships. In addition, adolescents recruited neural regions involved in mentalizing during affect labeling, which significantly mediated the associated between parental neural sensitivity and adolescents' emotional competence, suggesting that youth are modeling or referencing their parents' emotional profiles, thereby contributing to better emotional competence.