When we attend a demanding task, our performance is poor at low arousal (when drowsy) or high arousal (when anxious), but we achieve optimal performance at intermediate arousal. This celebrated Yerkes-Dodson inverted-U law relating performance and arousal is colloquially referred to as being "in the zone." In this talk, I will elucidate the behavioral and neural mechanisms linking arousal and performance under the Yerkes-Dodson law in a mouse model. During decision-making tasks, mice express an array of discrete strategies, whereby the optimal strategy occurs at intermediate arousal, measured by pupil, consistent with the inverted-U law. Population recordings from the auditory cortex (A1) further revealed that sound encoding is optimal at intermediate arousal. To explain the computational principle underlying this inverted-U law, we modeled the A1 circuit as a spiking network with excitatory/inhibitory clusters, based on the observed functional clusters in A1. Arousal induced a transition from a multi-attractor (low arousal) to a single attractor phase (high arousal), and performance is optimized at the transition point. The model also predicts stimulus- and arousal-induced modulations of neural variability, which we confirmed in the data. Our theory suggests that a single unifying dynamical principle, phase transitions in metastable dynamics, underlies both the inverted-U law of optimal performance and state-dependent modulations of neural variability.