By studying how individuals in an "at-risk" state of psychosis learn about threat and safety cues - specifically, how they develop and unlearn fear responses to neutral cues - we might better understand the mechanisms leading to heightened arousal and fear that are characteristic of acute psychotic episodes. At-risk individuals (N = 88; of which 28 fulfilled ultra-high-risk criteria on the Comprehensive Assessment of At-Risk Mental States interview and 60 scored above a predefined threshold on the Community Assessment of Psychic Experiences) and healthy controls (N = 44) underwent a standardized and validated differential fear conditioning paradigm including an acquisition, generalization, and extinction phase. The main outcomes of interest were the late positive potential, fear-potentiated startle, and self-reported ratings of valence, arousal, fear, and expectancy elicited by the conditioned stimuli (CS). The at-risk group exhibited diminished fear learning, evident in significantly reduced differentiation between the CS+ vs. CS- in the valence ratings compared to controls. Additionally, they demonstrated impaired fear extinction, evident in valence and arousal ratings, in which their CS differentiation showed a slower reduction than the controls. There were no group differences in late positive potential responses. At risk mental states appear to be associated with problems in distinguishing dangerous from safe stimuli and a diminished ability to adjust affective responses to conditioned stimuli based on new information, while the late-positive potential and fear-potentiated startle are unaltered. Early interventions could focus on recalibrating subjective emotional evaluations of fear-associated events.