Observational learning is essential for the acquisition of new behavior in educational practices and daily life and serves as an important mechanism for human cognitive and social-emotional development. However, we know little about its underlying neurocomputational mechanisms from a developmental perspective. In this study we used model-based fMRI to investigate differences in observational learning and individual learning between children and younger adults. Prediction errors (PE), the difference between experienced and predicted outcomes, related positively to striatal and ventral medial prefrontal cortex activation during individual learning and showed no age-related differences. PE-related activation during observational learning was more pronounced when outcomes were worse than predicted. Particularly, negative PE-coding in the dorsal medial prefrontal cortex was stronger in adults compared to children and was associated with improved observational learning in children and adults. The current findings pave the way to better understand observational learning challenges across development and educational settings.