The iterated prisoner's dilemma has been used to study human cooperation for decades. The recent discovery of extortion and generous strategies renewed interest on the role of strategy in shaping behavior in this dilemma. But what if players could perceive each other's emotional expressions? Despite increasing evidence that emotion signals influence decision making, the effects of emotion in this dilemma have been mostly neglected. Here we show that emotion expressions moderate the effect of generous strategies, increasing or reducing cooperation according to the intention communicated by the signal; in contrast, expressions by extortionists had no effect on participants' behavior, revealing a limitation of highly competitive strategies. We provide evidence that these effects are mediated mostly by inferences about other's intentions made from strategy and emotion. These findings provide insight into the value, as well as the limits, of behavioral strategies and emotion signals for cooperation.