Although alterations of the limbic system have been linked to tinnitus persistence, the neural networks underlying such alteration are unclear. The present study investigated the effect of tinnitus on emotional processing in middle-aged adults using functional magnetic resonance imaging and stimuli from the International Affective Digital Sounds database. There were three groups of participants: bilateral hearing loss with tinnitus (TIN), age- and gender-matched controls with bilateral hearing loss without tinnitus (HL) and matched normal hearing controls without tinnitus (NH). In the scanner, subjects rated sounds as pleasant, unpleasant, or neutral. The TIN and NH groups, but not the HL group, responded faster to affective sounds compared to neutral sounds. The TIN group had elevated response in bilateral parahippocampus and right insula compared to the NH group, and left parahippocampus compared to HL controls for pleasant relative to neutral sounds. A region-of-interest analysis detected increased activation for NH controls in the right amygdala when responding to affective stimuli, but failed to find a similar heightened response in the TIN and HL groups. All three groups showed increased response in auditory cortices for the affective relative to neutral sounds comparisons. Our results suggest that the emotional processing network is altered in tinnitus to rely on the parahippocampus and insula, rather than the amygdala, and this alteration may maintain a select advantage for the rapid processing of affective stimuli despite the hearing loss. The complex interaction of tinnitus and the limbic system should be accounted for in development of new tinnitus management strategies.