Dysfunctional memory processes are widely reported in anxiety disorders but the underlying neurocognitive mechanisms are unclear. Recent work shows the impact of anxiety on memory depends on the context and memory modality. For instance, threat of shock, a translational within-subject anxiety induction, has been shown to impair the encoding of facial stimuli, while improving spatial working memory (WM) accuracy. The present study aimed to delineate the neural circuitry regulating these opposing behavioral effects. Thirty-three healthy volunteers performed the previously assessed facial recognition and a spatial WM tasks inside an fMRI scanner, under alternating within-subject conditions of threat or safe from shock across encoding and retrieval. Facial recognition impairments were replicated when threat was selectively induced at encoding. Neuroimaging results suggest that this effect was driven by increased competition for attentional resources within the anterior cingulate cortex, in which activation correlated positively with stress levels. The impact of threat on spatial WM performance did not, however, replicate in the fMRI environment. Nevertheless, state-dependent hippocampal activation was observed in both tasks. These findings suggest a neurocognitive mechanism by which anxiety impairs facial recognition as well as a state-dependent hippocampal activation pattern which may putatively underline retrieval of negative experiences in anxiety