The neuropeptide oxytocin (OXT) can enhance the impact of positive social cues but may reduce that of negative ones by inhibiting amygdala activation, although it is unclear whether the latter causes blunted emotional and mnemonic responses. In two independent double-blind placebo-controlled experiments, each involving over 70 healthy male subjects, we investigated whether OXT affects modulation of startle reactivity by aversive social stimuli as well as subsequent memory for them. Intranasal OXT potentiated acoustic startle responses to negative stimuli, without affecting behavioral valence or arousal judgments, and biased subsequent memory toward negative rather than neutral items. A functional MRI analysis of this mnemonic effect revealed that, whereas OXT inhibited amygdala responses to negative stimuli, it facilitated left insula responses for subsequently remembered items and increased functional coupling between the left amygdala, left anterior insula, and left inferior frontal gyrus. Our results therefore show that OXT can potentiate the protective and mnemonic impact of aversive social information despite reducing amygdala activity, and suggest that the insula may play a role in emotional modulation of memory.