Increased activation of the hypothalamus pituitary adrenal (HPA) axis, marked by increased secretion of cortisol, is a biological marker of psychological stress. It is well established that the hippocampus plays an important role in the regulation of HPA axis activity. The relationship between cortisol (stress-related elevation or exogenous administration) and the hippocampal-related cognitive function is often examined. However, few human studies to date have examined the effect of stress on hippocampal activity and the interactions between stress-induced activation of the HPA axis and hippocampal function during different phases of cognitive function. On the basis of our previous work, we hypothesized that group differences in stress-sensitivity relate to differences in hippocampal-related stress-integration. To test this hypothesis, we conducted a functional MRI study using tasks known to involve the hippocampal formation: novel-picture encoding, psychological stress, and paired-picture recognition. On the basis of their cortisol responses to stress, we divided subjects into stress-responders (increase in cortisol, n = 9) and nonresponders (decrease in cortisol, n = 10). Responders showed higher hippocampal deactivation during the stress task and lower recognition scores due to a larger number of misses. Intriguingly, stress-responders showed significant differences in hippocampal activation already prior to stress, with higher levels of hippocampal activity during the picture encoding. Although effects of both cortisol and hippocampal activation on recognition were present in responders, similar effects were absent in the nonresponder group. Our results indicate that hippocampus plays an important role in adaptive behavioral responses. We hypothesize that states of hippocampal activation prior to stress might reflect states of vigilance or anxiety, which might be important for determining interindividual differences in subsequent stress response and cognitive performance.