Context-appropriate infant physiological functioning may support emotion regulation and mother–infant emotion coregulation. Among a sample of 210 low-income Mexican-origin mothers and their 24-week-old infants, dynamic structural equation modeling (DSEM) was used to examine whether within-infant vagal functioning accounted for between-dyad differences in within-dyad second-by-second emotion regulation and coregulation during free play. Vagal functioning was captured by within-infant mean and variability (standard deviation) of respiratory sinus arrhythmia (RSA) during free play. Infant emotion regulation was quantified as emotional equilibria (within-person mean), volatility (within-person deviation from equilibrium), carryover (how quickly equilibrium is restored following a disturbance), and feedback loops (the extent to which prior affect dampens or amplifies subsequent affect) in positive and negative affect during free play; coregulation was quantified as the influence of one partner's affect on the other's subsequent affect. Among infants with lower RSA variability, positive affect fluctuated around a higher equilibrium, and negative affect fluctuated around a lower equilibrium; these infants exhibited feedback loops where their positive affect dampened their subsequent negative affect. As expected, infants with higher mean RSA exhibited more volatility in positive affect, feedback loops between their positive and negative affect, and stronger mother-driven emotion coregulation. The results highlight differences in simultaneously occurring biological and emotion regulation.