Background. Corticosteroids-stress hormones released from the adrenal cortex-reduce phobic fear in humans and enhance psychotherapy, possibly by reducing the retrieval of fear memory. However, the underlying neural mechanism is not yet fully understood. Methods. We investigated the neural correlates of the acute fear-reducing effect of glucocorticoid administration in phobia with a randomized, double-blind, placebo-controlled functional magnetic resonance imaging (fMRI) study. We analysed fMRI data of participants diagnosed with spider phobia (n = 28) and healthy controls (n = 18) using multivoxel pattern analysis (MVPA). The spider-phobic patients received oral glucocorticoids (20 mg of hydrocortisone) or placebos. Participants rated their subjective fear while viewing spider or non-phobic pictures in the scanner. Results. Patients in the placebo and cortisol group exhibited increased decoding of phobic images in the middle cingulate cortex (MCC) and bilateral anterior insula compared to healthy controls with decoding at chance level. Patients with cortisol had less decoding in the MCC. Decoding of spider pictures in the MCC explained 38% of subjective fear across all individuals. In the placebo group, a causal model explained 12% variance in subjective fear influenced by the right anterior insula and the MCC; this relationship was changed in the cortisol group. Conclusions. These results suggest that the anterior insula and the MCC are strongly related to the decoding of phobic stimuli. Glucocorticoids seem to modulate the circuitry of MCC and anterior insula leading to a reduction in subjective fear.