Recent research has changed how developmental psychologists understand counterfactual thinking or thoughts of what might have been. Evidence suggests that counterfactual thinking develops over an extended period into at least middle childhood, depends on domain‐general processes including executive function and language, and dissociates from counterfactual emotions such as regret. In this article, we review the developmental evidence that forms a critical but often‐overlooked complement to the cognitive, social, and neuroscience literatures. We also highlight topics for further research, including spontaneous counterfactual thinking and counterfactual thinking in clinical settings.