The hippocampus plays a main role in regulating stress response in humans, but is itself highly sensitive to neurotoxic effects of repeated stressful episodes. Hippocampal atrophy related to experimental stress has been reported in laboratory studies in animals. Several controlled brain imaging studies have also shown hippocampal abnormalities in psychiatric disorders, including posttraumatic stress disorder (PTSD), major depressive disorder (MDD), and borderline personality disorder (BPD). This paper reviews the physiological role of the hippocampus in stress circuitry and the effects of stress on cognitive functions mediated by the hippocampus. We also review brain imaging studies investigating hippocampus in PTSD, MDD, and BPD. This literature suggests that individuals with PTSD, MDD, and BPD may suffer hippocampal atrophy as a result of stressors associated with these disorders. Prospective, longitudinal studies will be needed in high-risk offspring and first-episode subjects to explore the relationship between stress and hippocampal atrophy in these neuropsychiatric illnesses.