Background Posttraumatic stress disorder (PTSD) is associated with reduced executive functioning and verbal memory performance, as well as abnormal task‐specific activity in prefrontal cortex (PFC) and anterior cingulate cortices (ACC). The current study examined how PTSD symptoms and neuropsychological performance in combat veterans relates to (1) medial PFC and ACC activity during cognitive inhibition, and (2) task‐independent PFC functional connectivity. Methods Thirty‐nine male combat veterans with varying levels of PTSD symptoms completed the multisource interference task during functional magnetic resonance imaging. Robust regression analyses were used to assess relationships between percent signal change (PSC: incongruent–congruent) and both PTSD severity and neuropsychological performance. Analyses were conducted voxel‐wise and for PSC extracted from medial PFC and ACC regions of interest. Resting‐state scans were available for veterans with PTSD. Regions identified via task‐based analyses were used as seeds for resting‐state connectivity analyses. Results Worse PTSD severity and neuropsychological performance related to less medial PFC and rostral ACC activity during interference processing, driven partly by increased activation to congruent trials. Worse PTSD severity related to reduced functional connectivity between these regions and bilateral, lateral PFC (Brodmann area 10). Worse neuropsychological performance related to reduced functional connectivity between these regions and the inferior frontal gyrus. Conclusions PTSD and associated neuropsychological deficits may result from difficulties regulating medial PFC regions associated with “default mode,” or self‐referential processing. Further clarification of functional coupling deficits between default mode and executive control networks in PTSD may enhance understanding of neuropsychological and emotional symptoms and provide novel treatment targets.