US scientists discovered a brain structure involved with memory and emotion had shrunk in children with post-traumatic stress disorder (PTSD).
A withered hippocampus may make a child less able to deal with stress and raise anxiety, Pediatrics journal reports.
The children in the study also had higher blood levels of a stress hormonecalled cortisol, which has been shown to kill hippocampal cells in animals.
This could set up a vicious cycle, where high cortisol causes more hippocampal damage, which in turn raises the anxiety.
The Stanford University Medical Center scientists speculate that the ensuing damage could prolong the stress symptoms and also interfere with therapy.
Lead researcher Victor Carrion explained: "One common treatment for PTSD is to help a sufferer develop a narrative of the traumatic experience.
"But if the stress of the event is affecting areas of the brain responsible for processing information and incorporating it into a story, that treatment may not be as effective."
He said stress had to be extreme to cause the damage. "We are not talking about the stress of doing your homework or fighting with your dad," Dr Carrion said.
The 15 children he and his team studied all had PTSD as a result of physical, emotional or sexual abuse, witnessing violence or experiencing lasting separation and loss.
Dr Carrion said it would now be important to understand why some children appear to be more resilient to stress than others, and what the long-term effects of extreme stress are.
Experts already know a person's genes and environment play a role, and that having PTSD as a child increases the risk of depression and anxiety in adulthood.
It is estimated that up to 1 in 10 people may develop PTSD at some stage in life.
Professor Joe Herbert, professor of neuroscience at Cambridge University, said: "There is increasing evidence that adversity in early life can have long-lasting results on subsequent mental and physical health, and that at least some of these associations are the result of changes in the secretion of cortisol.
"The major question is whether the smaller hippocampus is a predictor of PTSD or a consequence."
He said a study in war veterans with PTSD suggested a smaller hippocampus predisposes to PTSD, not the other way round.