<p>Oxytocin tends to increase in-group bias across diverse social behaviors, with intergroup perception and categorization likely underpinning these effects. However, the role of oxytocin in the neuropsychological processes underlying intergroup categorization remains unclear. The present study addressed this issue with a double-blind, randomized, placebo-controlled, between-subjects pharmacological fMRI design. Fifty-eight healthy Chinese men were randomly assigned to receive a single 24 IU intranasal oxytocin dose (<i>n</i> = 29, mean ± SD = 22.86 ± 1.75 years) or placebo (<i>n</i> = 29, 23.00 ± 2.22 years). Thirty-five minutes after administration, participants underwent fMRI while performing an intergroup face-matching task that required explicit categorization of in-group versus out-group faces, with a shape-matching condition serving as the baseline. Compared to in-group targets, oxytocin increased insula responses and reduced ventromedial prefrontal cortex activity to out-group targets in individuals with stronger in-group identification. Moreover, Intergroup exposure interacted with drug treatment, such that increasing exposure to out-group members under oxytocin decreased dorsomedial prefrontal cortex activity to out-group targets while enhancing its connectivity with lateral prefrontal and occipital regions, whereas placebo produced the opposite pattern. Overall, our results suggest that intranasal oxytocin increased activity in regions linked to salience detection while decreasing engagement of areas involved in socio-cognitive processing for out-group relative to in-group targets. These findings provide novel evidence on how oxytocin shapes neural processes underlying intergroup categorization.</p>