Adolescent risky behavior is related to developmental changes in decision-making processes and their neural correlates. Yet, research investigating how the family environment relates to risk processing in the adolescent brain is limited. In this study, longitudinal data were collected from 167 adolescents (13–15 years, 53% male) who self-reported household chaos and their parent's monitoring practices, and completed a decision-making task during functional MRI at Time 1 and Time 2 (1 year apart). Parental knowledge was positively related to insular risk processing only among adolescents in low-chaos environments at both time points. Results highlight environmental correlates of insular risk processing in the developing brain.