Previous studies have shown that people who develop psychopathology such as posttraumatic stress disorder (PTSD) following stress exposure are characterized by reduced hippocampal (HC) volume and impaired HC functional connectivity with the ventromedial prefrontal cortex (vmPFC). Nevertheless, the exact interrelationship between reduced HC volume and HC-vmPFC connectivity deficits in the context of stress has yet to be established. Furthermore, it is still not clear whether such neural abnormalities are stress induced or precursors for vulnerability. In this study, we combined measurements of MRI, functional MRI (fMRI), and diffusion tensor imaging (DTI) to prospectively study 33 a priori healthy Israeli soldiers both pre- and post-exposure to stress during their military service. Thus, we were able to assess the contributions of structural and functional features of the HC and its connectivity to the onset and progression of maladaptive response to stress (i.e., increased PTSD symptoms post-exposure). We found that soldiers with decreased HC volume following military service (i.e., post-exposure) displayed more PTSD-related symptoms post-exposure as well as reduced HC-vmPFC functional and structural connectivity post-exposure, compared to soldiers with increased HC volume following military service. In contrast, initial smaller HC volume pre-exposure did not have an effect on any of these factors. Our results therefore suggest that reduction in HC volume and connectivity with the vmPFC together mark a maladaptive response to stressful military service. As stress-induced HC volume reductions were previously shown to be reversible, these localized biological markers may carry valuable therapeutic potential. Hum Brain Mapp 34:2808–2816, 2013. © 2012 Wiley Periodicals, Inc.