Posttraumatic stress disorder (PTSD) is a mental disorder that stems from exposure to one or more traumatic events. While PTSD is thought to result from a dysregulation of emotional neurocircuitry, neurocognitive difficulties are frequently reported. Mental flexibility is a core executive function that involves the ability to shift and adapt to new information. It is essential for appropriate social-cognitive behaviours. Magnetoencephalography (MEG), a neuroimaging modality with high spatial and temporal resolution, has been used to track the progression of brain activation during tasks of mental flexibility called set-shifting. We hypothesized that the sensitivity of MEG would be able to capture the abnormal neurocircuitry implicated in PTSD and this would negatively impact brain regions involved in set-shifting. Twenty-two soldiers with PTSD and 24 matched control soldiers completed a colour-shape set-shifting task. MEG data were recorded and source localized to identify significant brain regions involved in the task. Activation latencies were obtained by analysing the time course of activation in each region. The control group showed a sequence of activity that involved dorsolateral frontal cortex, insula and posterior parietal cortices. The soldiers with PTSD showed these activations but they were interrupted by activations in paralimbic regions. This is consistent with models of PTSD that suggest dysfunctional neurocircuitry is driven by hyper-reactive limbic areas that are not appropriately modulated by prefrontal cortical control regions. This is the first study identifying the timing and location of atypical neural responses in PTSD with set-shifting and supports the model that hyperactive limbic structures negatively impact cognitive function.