Adaptive behaviour necessitates the formation of memories for fearful events, but also that these memories can be extinguished. Effective extinction prevents excessive and persistent reactions to perceived threat, as can occur in anxiety and ‘trauma- and stressor-related’ disorders1. However, although there is evidence that fear learning and extinction are mediated by distinct neural circuits, the nature of the interaction between these circuits remains poorly understood2,3,4,5,6. Here, through a combination of in vivo calcium imaging, functional manipulations, and slice physiology, we show that distinct inhibitory clusters of intercalated neurons (ITCs) in the mouse amygdala exert diametrically opposed roles during the acquisition and retrieval of fear extinction memory. Furthermore, we find that the ITC clusters antagonize one another through mutual synaptic inhibition and differentially access functionally distinct cortical- and midbrain-projecting amygdala output pathways. Our findings show that the balance of activity between ITC clusters represents a unique regulatory motif that orchestrates a distributed neural circuitry, which in turn regulates the switch between high- and low-fear states. These findings suggest that the ITCs have a broader role in a range of amygdala functions and associated brain states that underpins the capacity to adapt to salient environmental demands.