Many regions within stress neurocircuitry, including the anterior hypothalamus, amygdala, hippocampus, and medial prefrontal cortex, are densely populated with sex steroid receptors. Substantial evidence from animal studies indicates that the gonadal hormone 17β-estradiol (E₂) impacts the structure and function of these regions, but human studies are limited. Characterizing estradiol's role in stress circuitry in vivo in humans may have important clinical implications given the comorbidity between major depressive disorder (MDD), stress circuitry dysfunction and endocrine dysregulation. In this study, we determined estradiol's role in modulating activity within cortical and subcortical stress circuitry regions in healthy and MDD women. Subjects were part of a population-based birth cohort, the New England Family Study. Capitalizing on the endogenous fluctuation in E₂ during the menstrual cycle, we conducted a within-person repeated-measures functional neuroimaging study in which 15 women with recurrent MDD, in remission, and 15 healthy control women underwent hormonal evaluations, behavioral testing, and fMRI scanning on two occasions, under low and high E₂ conditions. Subjects completed an fMRI scan while undergoing a mild visual stress challenge that reliably activated stress neural circuitry. Results demonstrate that E₂ modulates activity across key stress circuitry regions, including bilateral amygdala, hippocampus, and hypothalamus. In healthy women, robust task-evoked BOLD signal changes observed under low E₂ conditions were attenuated under high E₂ conditions. This hormonal capacity to regulate activity in stress circuitry was not observed in MDD women, despite their remitted status, suggesting that dysregulation of gonadal hormone function may be a characteristic trait of the disease. These findings serve to deepen our understanding of estradiol's actions in the healthy brain and the neurobiological mechanisms that may underlie the pronounced sex difference in MDD risk.