Living in a disadvantaged neighborhood is associated with worse health and early mortality. Although many mechanisms may partially account for this effect, disadvantaged neighborhood environments are hypothesized to elicit stress and emotional responses that accumulate over time and influence physical and mental health. However, evidence for neighborhood effects on stress and emotion is limited due to methodological challenges. In order to address this question, we developed a virtual reality experimental model of neighborhood disadvantage and affluence and examined the effects of simulated neighborhoods on immediate stress and emotion. Exposure to neighborhood disadvantage resulted in greater negative emotion, less positive emotion, and more compassion, compared to exposure to affluence. However, the effect of virtual neighborhood environments on blood pressure and electrodermal reactivity depended on parental education. Participants from families with lower education exhibited greater reactivity to the disadvantaged neighborhood, while those from families with higher education exhibited greater reactivity to the affluent neighborhood. These results demonstrate that simulated neighborhood environments can elicit immediate stress reactivity and emotion, but the nature of physiological effects depends on sensitization to prior experience.