Empathy, crucial for social interaction, is impaired across various neuropsychiatric conditions. However, the genetic and neural underpinnings of empathy variability remain elusive. By combining forward genetic mapping with transcriptome analysis, we discover that aryl hydrocarbon receptor nuclear translocator 2 (ARNT2) is a key driver modulating observational fear, a basic form of affective empathy. Disrupted ARNT2 expression in the anterior cingulate cortex (ACC) reduces affect sharing in mice. Specifically, selective ARNT2 ablation in somatostatin (SST)-expressing interneurons leads to decreased pyramidal cell excitability, increased spontaneous firing, aberrant Ca2+ dynamics, and disrupted theta oscillations in the ACC, resulting in reduced vicarious freezing. We further demonstrate that ARNT2-expressing SST interneurons govern affective state discrimination, uncovering a potential mechanism by which ARNT2 polymorphisms associate with emotion recognition in humans. Our findings advance our understanding of the molecular mechanism controlling empathic capacity and highlight the neural substrates underlying social affective dysfunctions in psychiatric disorders.