We suggest that the core feature of bipolar disorder (BPD) is marked state fluctuations. The pathophysiology of switches into depressed, irritable, and extreme positive valence states requires study, with the latter deserving particular focus because it represents a pathognomonic feature of BPD in both adults and children. Hypotheses regarding the pathophysiology of pediatric BPD must account for these marked state fluctuations as well as for specific developmental aspects of the illness. These developmental aspects include marked irritability (in addition to euphoria and depression) and very rapid cycles, along with high rates of attention-deficit/hyperactivity disorder. We review research on neural mechanisms underlying positive valence states and state regulation, focusing on those data relevant to BPD and to development. Researchers are beginning to explore the response of manic patients and control subjects to positive affective stimuli, and considerable research in both nonhuman primates and humans has focused on the cortico-limbic-striatal circuits mediating responses to rewarding stimuli. In control subjects, positive affect affects cognition, and data indicate that prefrontal electroencephalogram asymmetry may differ between control subjects with consistently positive affect and those with more negative affect; however, this latter generalization may not apply to adolescents. With regard to the pathophysiology of state switching in pediatric BPD, data in control subjects indicating that attention regulation plays a role in emotion regulation may be germane. In addition, research detailing physiologic and psychological responses to negative emotional stimuli in bipolar patients and control subjects may increase our understanding of the mechanisms underlying both irritability and rapid cycling seen in children with BPD. Potential foci for research on the pathophysiology of pediatric BPD include reactivity to standardized positive and negative emotional stimuli, and the interaction between emotion regulation and attentional processes.