Co-occurring posttraumatic stress disorder (PTSD) and alcohol use disorder (AUD) is common and particularly associated with elevation of hyperarousal compared to PTSD alone. Treatment options are limited. Oxytocin regulates physiological stress response. Intranasal oxytocin administration has demonstrated potential in reducing symptoms of both PTSD and AUD. This study addresses a gap in the literature by investigating effects of intranasal oxytocin on startle reactivity, an important potential marker of both PTSD and AUD symptomatology. This is a randomized, double-blind, placebo-controlled, within- and between-participant, crossover, dose-ranging study examining the effects of a single administration of oxytocin 20 IU versus 40 IU versus placebo on psychophysiological responses to a common laboratory fear-potentiated acoustic startle paradigm in participants with PTSD-AUD (n = 47) and controls (n = 37) under three different levels of threat. Contrary to our hypothesis, for the PTSD-AUD group, oxytocin 20 IU had no effect on startle reactivity, while oxytocin 40 IU increased measures of startle reactivity. Additionally, for PTSD-AUD only, ambiguous versus low threat was associated with an elevated skin conductance response. For controls only, oxytocin 20 IU versus placebo was associated with reduced startle reactivity.