Aversive experiences are powerful triggers for neural plasticity and memory formation and the intensity of these experiences controls the strength of the memory. To trigger memories, aversive experiences activate neural 'teaching signal' circuits which engage plasticity in brain regions involved in learning and memory. Fear conditioning is an ideal model system for studying these processes because a site of plasticity mediating memory formation has been identified in the lateral nucleus of the amygdala. Using a combined optogenetic, behavioral and physiological approach, we examined the factors and neural circuits which trigger fear learning, how aversive teaching signals are encoded within the fear teaching signal circuit and the functional implications of this neural coding for setting the strength of fear memories. We found that the periaqueductal gray is part of the fear teaching signal circuit and relays aversive information to the lateral amygdala. In addition, we identified a negative feedback pathway from the central nucleus of the amygdala to the PAG which regulates aversive responding in lateral amygdala neurons to set fear memory strength. The results suggest a concerted neural mechanism for how aversive experiences initiate and control the strength of associative fear memories and have important implications for our understanding of anxiety disorders characterized by exaggerated aversive learning.