Structural neuroimaging studies have identified abnormalities in the basal ganglia in patients with bipolar disorder. Findings have been mixed with regard to affective state and have not elaborated on the role of medication on functional brain activity. The aims of the present study were to use functional magnetic resonance imaging (fMRI) to test whether depressed and manic bipolar disorder patients differ in terms of activity in cortical and subcortical brain areas and to examine the effects of psychotropic medication. Twenty-four bipolar disorder subjects and 13 healthy comparison subjects participated in an fMRI study of manual reaction time. Both manic and depressed subjects exhibited abnormally elevated blood oxygen level dependent BOLD responses in cortical and subcortical areas. Manic bipolar subjects had significantly higher BOLD responses in the left globus pallidus and significantly lower BOLD responses in the right globus pallidus compared with depressed bipolar patients. Correlational analyses revealed significant relationships between the severity of mania and activity within the globus pallidus and caudate. Patients off antipsychotic or mood-stabilizing medication exhibited significantly higher BOLD responses throughout the motor cortex, basal ganglia and thalamus compared with patients on these medications. These results suggest that affective state in bipolar disorder may be related to a disturbance of inhibitory regulation within the basal ganglia and that antipsychotics and/or mood stabilizers normalize cortical and subcortical hyperactivity.