Fe deficiency in early childhood is associated with long-term consequences for cognitive, motor and behavioural development; however explorations in healthy children from low risk, high-resource settings have been limited. We aimed to explore associations between Fe status and neurodevelopmental outcomes in low risk, healthy 2-year-olds. This study was a secondary analysis of a nested case–control subgroup from the prospective, maternal-infant Cork Babies after Screening for Pregnancy Endpoints: Evaluating the Longitudinal Impact using Neurological and Nutritional Endpoints (BASELINE) Birth Cohort Study. At 2 years, serum ferritin, Hb and mean corpuscular volume (MCV) were measured and neurodevelopment was assessed using the Bayley Scales of Infant and Toddler Development (n 87). Five children had Fe deficiency (ferritin n 13) had significantly lower mean cognitive composite scores (88·5 (sd 13·3) v. 97·0 (sd 7·8), P=0·04, Cohen’s d effect size=0·8) than those without microcytosis. The ferritin concentration which best predicted microcytosis was calculated as 18·4 µg/l (AUC=0·87 (95% CI 0·75, 0·98), Psd 10·5) v. 97·8 (sd 8·1), P=0·012, Cohen’s d effect size=0·6) compared with those with ferritin =18·5 µg/l. All associations were robust after adjustment for potential confounding factors. Despite a low prevalence of Fe deficiency using current diagnostic criteria in this healthy cohort, microcytosis was associated with lower cognitive outcomes at 2 years. This exploratory study emphasises the need for re-evaluation of the diagnostic criteria for Fe deficiency in young children, with further research in adequately powered studies warranted.