Background: 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. Methods: 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 in the Community assessment of Psychic Experiences questionnaire) 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). Results: 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. Conclusion: 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.