We investigated the hypothesis that arousal recruits attention to item information, thereby disrupting working memory processes that help bind items to context. Using functional magnetic resonance imaging, we compared brain activity when participants remembered negative or neutral picture-location conjunctions (source memory) versus pictures only. Behaviorally, negative trials showed disruption of short-term source, but not picture, memory; long-term picture recognition memory was better for negative than for neutral pictures. Activity in areas involved in working memory and feature integration (precentral gyrus and its intersect with superior temporal gyrus) was attenuated on negative compared with neutral source trials relative to picture-only trials. Visual processing areas (middle occipital and lingual gyri) showed greater activity for negative than for neutral trials, especially on picture-only trials.