Recent work has identified disruption of several brain networks involving limbic and cortical regions that contribute to the generation of diverse symptoms of major depressive disorder (MDD). Of particular interest are the networks anchored on the right anterior insula, which binds the cortical and limbic regions to enable key functions that integrate bottom-up and top-down information in emotional and cognitive processing. Emotional appraisal has been linked to a presumed hierarchy of processing, from sensory percepts to affective states. But it is unclear whether the network level dysfunction seen in depression relates to a breakdown of this presumed hierarchical processing system from sensory to higher cognitive regions, mediated by core limbic regions (e.g. insula). In 16 patients with current MDD, and 16 healthy controls, we investigated differences in directional influences between anterior insula and the rest of the brain using resting-state functional magnetic resonance imaging (fMRI) and Granger-causal analysis (GCA), using anterior insula as a seed region. Results showed a failure of reciprocal influence between insula and higher frontal regions (dorsomedial prefrontal cortex) in addition to a weakening of influences from sensory regions (pulvinar and visual cortex) to the insula. This suggests dysfunction of both sensory and putative self-processing regulatory loops centered around the insula in MDD. For the first time, we demonstrate a network-level processing defect extending from sensory to frontal regions through insula in depression. Within limitations of inferences drawn from GCA of resting fMRI, we offer a novel framework to advance targeted network modulation approaches to treat depression.