Children tend to punish norm transgressions, even when they are mere external observers—a phenomenon known as Third-Party Punishment (TPP). This behavior is influenced by intergroup bias, as children unevenly punish ingroup and outgroup members. Here, we explored the influence of intergroup bias in TPP decisions in children between six and 11 years of age (N = 124) using costly versus non-costly decisions while measuring response times as a proxy of the mechanisms underlying intergroup bias in TPP. Our results showed that children exhibited two types of intergroup biases: (i) an ingroup policing bias, as they preferentially punished selfish behavior from ingroup members, and (ii) an ingroup protectionism bias, as they were more willing to punish selfishness directed at ingroup members than outgroup members. We observed different developmental trajectories and mechanisms associated with these biases. First, while ingroup protectionism was present in all children, ingroup policing decreases with age and it was absent in children between 10 and 11 years of age. Second, both intergroup biases were associated with deliberative/conflictive processes. These results shed light on the mechanisms that underlie the development of intergroup bias in TPP decisions.