Posttraumatic stress disorder is characterized by hyperarousal, sensory processing impairments, sleep disturbances and altered fear regulation; phenotypes associated with changes in brain oscillatory activity. Molecules associated with activity-dependent plasticity, including brain-derived neurotrophic factor (BDNF), may regulate neural oscillations by controlling synaptic activity. BDNF synthesis includes production of multiple Bdnf transcripts, which contain distinct 5' noncoding exons. We assessed arousal, sensory processing, fear regulation and sleep in animals where BDNF expression from activity-dependent promoter IV is disrupted (Bdnf-e4 mice). Bdnf-e4 mice display sensory hyper-reactivity and impaired electrophysiological correlates of sensory information processing as measured by event-related potentials (ERP). Utilizing electroencephalogram, we identified a decrease in slow-wave activity during non-rapid eye movement sleep, suggesting impaired sleep homeostasis. Fear extinction is controlled by hippocampal-prefrontal cortical BDNF signaling, and neurophysiological communication patterns between the hippocampus (HPC) and medial prefrontal cortex (mPFC) correlate with behavioral performance during extinction. Impaired fear extinction in Bdnf-e4 mice is accompanied by increased HPC activation and decreased HPC-mPFC theta phase synchrony during early extinction, as well as increased mPFC activation during extinction recall. These results suggest that activity-dependent BDNF signaling is critical for regulating oscillatory activity, which may contribute to altered behavior.