The neural circuit linking the medial prefrontal cortex (mPFC) and the basolateral amygdala (BLA) has crucial roles in both the acquisition and the extinction of fear. However, the mechanism by which this circuit encodes fear and extinction remains unknown. In this study, we monitored changes in the magnitude of evoked field potentials (EFPs) in the mPFC–BLA and BLA–mPFC pathways following auditory fear conditioning and extinction, in freely moving rats. We report that extinction of fear is mediated by depression of the EFPs in the mPFC–BLA and by potentiation in the reciprocal pathway of BLA–mPFC. Interestingly, reinstatement of fear was associated with recovery of freezing and with reversal of the changes in EFPs that were observed following extinction in both pathways. The findings indicate that the mPFC–BLA circuit expresses differential changes following fear and extinction and point to dynamic and plastic changes underlying fear, extinction, and reinstatement. Manipulations targeting these different types of plasticity could constitute a therapeutic tool for the treatment of anxiety disorders.