<p>A key function of brain systems mediating emotion is to learn to anticipate unpleasant experiences. Although organisms readily associate sensory stimuli with aversive outcomes, higher-order forms of emotional learning and memory require inference to extrapolate the circumstances surrounding directly experienced aversive events to other indirectly related sensory patterns that were not part of the original experience. This type of learning requires internal models of emotion, which flexibly track directly experienced and inferred aversive associations. Although the brain mechanisms of simple forms of aversive learning have been well studied in areas such as the amygdala^{<CitationRef AdditionalCitationIDS="CR2 CR3" CitationID="CR1">1</CitationRef>–<CitationRef CitationID="CR4">4</CitationRef>}, whether and how the brain forms and represents internal models of emotionally relevant associations are not known^{<CitationRef CitationID="CR5">5</CitationRef>}. Here we report that neurons in the rodent dorsomedial prefrontal cortex (dmPFC) encode a flexible internal model of emotion by linking sensory stimuli in the environment with aversive events, whether they were directly or indirectly associated with that experience. These representations form through a multi-step encoding mechanism involving recruitment and stabilization of dmPFC cells that support inference. Although dmPFC population activity encodes all salient associations, dmPFC neurons projecting to the amygdala specifically represent and are required to express inferred associations. Together, these findings reveal how internal models of emotion are encoded in the dmPFC to regulate subcortical systems for recall of inferred emotional memories.</p>