Impairments in emotion regulation are thought to have a key role in the pathogenesis of anxiety disorders, but the neurobiological underpinnings contributing to vulnerability remain poorly understood. It has been a long-held view that exaggerated fear is linked to hyperresponsivity of limbic brain areas and impaired recruitment of prefrontal control. However, increasing evidence suggests that prefrontal–cortical networks are hyperactive during threat processing in anxiety disorders. This study directly explored limbic–prefrontal neural response, connectivity and heart-rate variability (HRV) in patients with a severe anxiety disorder during incidental versus intentional emotion regulation. During 3 Tesla functional magnetic resonance imaging, 18 participants with panic disorder and 18 healthy controls performed an emotion regulation task. They either viewed negative images naturally (Maintain), or they were instructed to intentionally downregulate negative affect using previously taught strategies of cognitive reappraisal (Reappraisal). Electrocardiograms were recorded throughout to provide a functional measure of regulation and emotional processing. Compared with controls, patients showed increased neural activation in limbic–prefrontal areas and reduced HRV during incidental emotion regulation (Maintain). During intentional regulation (Reappraisal), group differences were significantly attenuated. These findings emphasize patients’ ability to regulate negative affect if provided with adaptive strategies. They also bring prefrontal hyperactivation forward as a potential mechanism of psychopathology in anxiety disorders. Although these results challenge models proposing impaired allocation of prefrontal resources as a key characteristic of anxiety disorders, they are in line with more recent neurobiological frameworks suggesting that prefrontal hyperactivation might reflect increased utilisation of maladaptive regulation strategies quintessential for anxiety disorders.