In this study, we assessed congitive function and neurophysiological development in congenitally hypothyroid (CH) children. We performed a cross-sectional study at the outpatient Pediatric Clinic and Department of Neurophysiology at San Raffaele Hospital, Milan. The study enrolled 25 CH patients (6.00–10.83 years of age) detected by neonatal screening, and 34 healthy control children (4–11 years of age). Patients and controls had comparable scores at neuropsychological tests (WISC-R), and at auditory P300 tests. In contrast, we found significantly longer LLSEP latencies in CH patients (p < 0.03). CH patients treated 30 days after birth showed lower scores at neuropsychological tests, but not at neurophysiological tests, compared to patients who started the replacement therapy earlier. Patients with more severe fetal hypothyroidism (T4 levels at diagnosis ≤ 2 μg/dl) had lower neuropsychological scores, and similar neurophysiological results, compared with patients with moderate fetal hypothyroidism. The severity of fetal hypothyroidism and early treatment influence the mental outcome of CH patients. Neurophysiological results show that central nervous system damage occurs in some patients despite early treatment.