Fear generalization is a prominent feature of anxiety disorders and post-traumatic stress disorder (PTSD). It is defined as enhanced fear responding to a stimulus that bears similarities, but is not identical to a threatening stimulus. Pattern separation, a hippocampal-dependent process, is critical for stimulus discrimination; it transforms similar experiences or events into non-overlapping representations. This study is the first in humans to investigate the extent to which fear generalization relies on behavioral pattern separation abilities. Participants (N = 46) completed a behavioral task taxing pattern separation, and a neuroimaging fear conditioning and generalization paradigm. Results show an association between lower behavioral pattern separation performance and increased generalization in shock expectancy scores, but not in fear ratings. Furthermore, lower behavioral pattern separation was associated with diminished recruitment of the subcallosal cortex during presentation of generalization stimuli. This region showed functional connectivity with the orbitofrontal cortex and ventromedial prefrontal cortex. Together, the data provide novel experimental evidence that pattern separation is related to generalization of threat expectancies, and reduced fear inhibition processes in frontal regions. Deficient pattern separation may be critical in overgeneralization and therefore may contribute to the pathophysiology of anxiety disorders and PTSD.