Sex-hormone fluctuations may increase risk for developing depressive symptoms and alter emotional processing as supported by observations in menopausal and pre- to postpartum transition. In this double-blinded, placebo-controlled study, we used blood-oxygen level dependent functional magnetic resonance imaging (fMRI) to investigate if sex-steroid hormone manipulation with a gonadotropin-releasing hormone agonist (GnRHa) influences emotional processing. Fifty-six healthy women were investigated twice: at baseline (follicular phase of menstrual cycle) and 16 ± 3 days post intervention. At both sessions, fMRI-scans during exposure to faces expressing fear, anger, happiness or no emotion, depressive symptom scores and estradiol levels were acquired. The fMRI analyses focused on regions of interest for emotional processing. As expected, GnRHa initially increased and subsequently reduced estradiol to menopausal levels, which was accompanied by an increase in subclinical depressive symptoms relative to placebo. Women who displayed larger GnRHa-induced increase in depressive symptoms had a larger increase in both negative and positive emotion-elicited activity in the anterior insula. When considering the post-GnRHa scan only, depressive responses were associated with emotion-elicited activity in the anterior insula and amygdala. The effect on regional activity in anterior insula was not associated with the estradiol net decline, only by the GnRHa-induced changes in mood. Our data implicate enhanced insula recruitment during emotional processing in the emergence of depressive symptoms following sex-hormone fluctuations. This may correspond to the emotional hypersensitivity frequently experienced by women postpartum.