Post-traumatic stress disorder (PTSD) patients display pervasive fear memories, expressed indiscriminately. Proposed mechanisms include enhanced fear learning and impaired extinction or extinction recall. Documented extinction recall deficits and failure to use safety signals could result from general failure to use contextual information, a hippocampus-dependent process. This can be probed by adding a renewal phase to standard conditioning and extinction paradigms. Human subjects with PTSD and combat controls were conditioned (skin conductance response), extinguished, and tested for extinction retention and renewal in a scanner (fMRI). Fear conditioning (light paired with shock) occurred in one context, followed by extinction in another, to create danger and safety contexts. The next day, the extinguished conditioned stimulus (CS+E) was re-presented to assess extinction recall (safety context) and fear renewal (danger context). PTSD patients showed impaired extinction recall, with increased skin conductance and heightened amygdala activity to the extinguished CS+ in the safety context. However, they also showed impaired fear renewal; in the danger context, they had less skin conductance response to CS+E and lower activity in amygdala and ventral-medial prefrontal cortex compared with combat controls. Control subjects displayed appropriate contextual modulation of memory recall, with extinction (safety) memory prevailing in the safety context, and fear memory prevailing in the danger context. PTSD patients could not use safety context to sustain suppression of extinguished fear memory, but they also less effectively used danger context to enhance fear. They did not display globally enhanced fear expression, but rather showed a globally diminished capacity to use contextual information to modulate fear expression.