Fear memories are crucial for survival. However, excessive generalization of such memories, characterized by a failure to discriminate dangerous from safe stimuli, is common in anxiety disorders. Neuronal encoding of the transition from cue-specific to generalized fear is poorly understood. We identified distinct neuronal populations in the lateral amygdala (LA) of rats that signaled generalized versus cue-specific associations and determined how their distributions switched during fear generalization. Notably, the same LA neurons that were cue specific before the behavioral shift to generalized fear lost their specificity afterwards, thereby tilting the balance of activity toward a greater proportion of generalizing neurons. Neuronal activity in the LA, but not the auditory cortex, was necessary for fear generalization. Furthermore, targeted activation of cAMP-PKA signaling in the LA increased neuronal excitability of LA neurons and led to generalized fear. These results provide a cellular basis in the amygdala for the alteration of emotional states from normal to pathological fear.