The ability to recognize and label emotional experiences has been associated with well-being and adaptive functioning. This skill is particularly important in social situations, as emotions provide information about the state of relationships and help guide interpersonal decisions, such as whether to disclose personal information. Given the interpersonal difficulties linked to social anxiety disorder (SAD), deficient negative emotion differentiation may contribute to impairment in this population. We hypothesized that people with SAD would exhibit less negative emotion differentiation in daily life, and these differences would translate to impairment in social functioning. We recruited 43 people diagnosed with generalized SAD and 43 healthy adults to describe the emotions they experienced over 14 days. Participants received palmtop computers for responding to random prompts and describing naturalistic social interactions; to complete end-of-day diary entries, they used a secure online website. We calculated intraclass correlation coefficients to capture the degree of differentiation of negative and positive emotions for each context (random moments, face-to-face social interactions, and end-of-day reflections). Compared to healthy controls, the SAD group exhibited less negative (but not positive) emotion differentiation during random prompts, social interactions, and (at trend level) end-of-day assessments. These differences could not be explained by emotion intensity or variability over the 14 days, or to comorbid depression or anxiety disorders. Our findings suggest that people with generalized SAD have deficits in clarifying specific negative emotions felt at a given point of time. These deficits may contribute to difficulties with effective emotion regulation and healthy social relationship functioning.