Dysregulation in contextual processing is believed to affect several forms of psychopathology, such as post-traumatic stress disorder (PTSD). The dentate gyrus (DG), a subregion of the hippocampus, is thought to be an important brain region for disambiguating new experiences from prior experiences. Noradrenergic (NE) neurons in the locus coeruleus (LC) are more tonically active during stressful events and send dense projections to the DG, yet an understanding of their function in DG-dependent contextual discrimination has not been established. Here, we isolate a key function of the LC-NE-DG circuit in contextual aversive generalization using selective manipulations and in vivo single-cell calcium imaging. We report that activation of LC-NE neurons and terminal activity results in contextual generalization. We found that these effects required β-adrenergic-mediated modulation of hilar interneurons to ultimately promote aversive generalization, suggesting that disruption of noradrenergic tone may serve as an important avenue for treating stress-induced disorders.