Reactivating the memory of a context improves retrieval of information learned in that context. But does context reactivation resolve memory competition between related but conflicting emotional experiences? Here, we asked whether spontaneously retrieved episodic context disambiguates competing memories of fear and safety in the healthy brain and in posttraumatic stress disorder. During fMRI, subjects learned that items from an object category were a threat, and then learned that different items from the same category were safe in a unique context. The next day, subjects viewed new threat ambiguous stimuli from the same category and reported their expectation of threat. Multivoxel pattern analysis (MVPA) was used to identify and decode neural patterns unique to the context of safety learning. We show that in healthy adults the degree of neural reinstatement of the safe context predicted activity to threat ambiguous stimuli in the ventromedial prefrontal cortex (vmPFC) and hippocampus, regions important for contextual modulation of emotional memory retrieval. The degree of context reinstatement also disambiguated subjects feelings of threat versus safety. In contrast, context reinstatement did not resolve emotional memory retrieval in subjects with PTSD, indicating a contextual processing deficit in this group. Finally, multivoxel pattern similarity between safe and threat ambiguous stimuli overlapped in the vmPFC in healthy adults but not in PTSD. These findings reveal how neural reinstatement helps resolve context-dependent memory retrieval between opposing sources of emotional information. Understanding how the human brain separately encodes and retrieves competing memories of related events has broad implications for the study of emotional memory, associative learning, and the neuropathophysiology of affective disorders.