Generalized social anxiety disorder (GSAD) is associated with heightened limbic and prefrontal activation to negative social cues conveying threat (e.g. fearful faces), but less is known about brain response to negative non-threatening social stimuli. The neuropeptide oxytocin (Oxt) has been shown to attenuate (and normalize) fear-related brain activation and reactivity to emotionally negative cues. Here, we examined the effects of intranasal Oxt on cortical activation to non-threatening sad faces in patients with GSAD and matched controls (Con). In a double-blind placebo-controlled within-subjects design, the cortical activation to sad and happy (vs. neutral) faces was examined using functional magnetic resonance imaging following acute intranasal administration of 24 IU Oxt and placebo. Relative to the Con group, GSAD patients exhibited heightened activity to sad faces in the medial prefrontal cortex (mPFC/BA 10) extending into anterior cingulate cortex (ACC/BA 32). Oxt significantly reduced this heightened activation in the mPFC/ACC regions to levels similar to that of controls. These findings suggest that GSAD is associated with cortical hyperactivity to non-threatening negative but not positive social cues and that Oxt attenuates this exaggerated cortical activity. The modulation of cortical activity by Oxt highlights a broader mechanistic role of this neuropeptide in modulating socially negative cues in GSAD.