Overgeneralization of negative memories is a cognitive feature and predisposing factor for depression. Variable aversive events promote both memory overgeneralization and depression. However, the underlying mechanisms connecting memory generalization to depression remain unclear. Here, we demonstrate that mice that undergo two contextual fear conditionings (CFC) in altered, but not the same context, exhibit generalization of fear memories and depression-like behaviors. The medial prefrontal cortex (mPFC) to bed nucleus of the stria terminals (BNST) projection promotes both memory generalization and depression-like behaviors. Single-cell calcium imaging of mPFCBNST neurons identifies overlapping ensembles for depression-like behavior and fear memory generalization, but not with memory retrieval. Furthermore, circuit-based RNA sequencing identifies changes in transcriptional profiles related to altered axonal connectivity caused by two CFC trainings in altered contexts. These findings highlight the importance of rectifying generalization of negative memories and the underlying circuit for the intervention of depression and other stress-related neuropsychiatry disorders.