Phylogenetically the most ancient sense, olfaction is characterized by a unique intimacy with the emotion system. However, mechanisms underlying olfaction-emotion interaction remain unclear, especially in an ever-changing environment and dynamic internal milieu. Perturbing the internal state with anxiety induction in human subjects, we interrogated emotion-state-dependent olfactory processing in a functional magnetic resonance imaging (fMRI) study. Following anxiety induction, initially neutral odors become unpleasant and take longer to detect, accompanied by augmented response to these odors in the olfactory (anterior piriform and orbitofrontal) cortices and emotion-relevant pregenual anterior cingulate cortex. In parallel, the olfactory sensory relay adapts with increased anxiety, incorporating amygdala as an integral step via strengthened (afferent or efferent) connections between amygdala and all levels of the olfactory cortical hierarchy. This anxiety-state-dependent neural circuitry thus enables cumulative infusion of limbic affective information throughout the olfactory sensory progression, thereby driving affectively charged olfactory perception. These findings could constitute an olfactory etiology model of emotional disorders, as exaggerated emotion-olfaction interaction in negative mood states turns innocuous odors aversive, fueling anxiety and depression with rising ambient sensory stress.