In the United States, the prevalence of psychiatric disorders has reached nearly epidemic proportions. Years of research has focused on the link between 17β-estradiol and the sex differences observed in anxiety disorders. Evidence suggests that estradiol plays a critical role in the way female rodents and women respond in various tasks assessing anxiety-like behaviors, fear learning, and fear extinction. One hallmark feature of many anxiety disorders is the tendency to express fear to nonthreatening contexts or cues. This generalized fear supports spreading of fear responses and can serve to maintain anxiety states. This chapter reviews the literature linking estradiol to anxiety behavior in female rodents and anxiety in women, including research on estradiol in fear learning and fear extinction. The chapter also presents data suggesting that female rats generalize fear at a faster rate than males, and this is due to estradiol. Through a series of experiments, the authors determine that estradiol promotes contextual fear generalization in female rats through activation of cytosolic estrogen receptor beta (ERβ) within the dorsal CA1 region of the hippocampus (dCA1). Additionally, estradiol promotes fear generalization likely through augmented glutamatergic signaling within the dCA1 and anterior cingulate cortex (ACC). However, in males, estradiol (and testosterone) function to reduce fear generalization and do so by activation of both ERβ and ERα within the dCA1. Understanding the neural mechanisms underlying the critical role of estradiol in context fear generalization will yield the knowledge and information necessary for developing novel, sex-specific, treatments for anxiety disorders.