Panic disorder is twice a common in women than in men. In women, susceptibility to panic increases during the late luteal (premenstrual) phase of the menstrual cycle, when progesterone secretion is in rapid decline. This article considers the evidence for the midbrain periaqueductal grey (PAG) as a locus for panic and for the use of PAG stimulation as an animal model of panic in both sexes. We show in females how a rapid fall in progesterone secretion, such as occurs during the late dioestrus phase of the ovarian cycle in rats (similar to the late luteal phase in women), triggers a neuronal withdrawal response during which the excitability of the midbrain panic circuitry increases as a result of upregulation of extrasynaptic GABAA receptors on inhibitory interneurones in the PAG. The withdrawal effect is due not to the native hormone but to its neuroactive metabolite allopregnanolone. Differences in the kinetics of allopregnanolone metabolism may contribute to individual differences in susceptibility to panic in women.