Humans live in, rely on, and contribute to groups. Evolution may have biologically prepared them to quickly identify others as belonging to the in-group (vs. not), to decode emotional states, and to empathize with in-group members; to learn and conform to group norms and cultural practices; to extend and reciprocate trust and cooperation; and to aggressively protect the in-group against outside threat. We review evidence that these components of human group psychology rest on and are modulated by the hypothalamic neuropeptide oxytocin. It appears that oxytocin motivates and enables humans to 1) like and empathize with others in their groups, 2) comply with group norms and cultural practices, and 3) extend and reciprocate trust and cooperation, which may give rise to intergroup discrimination and sometimes defensive aggression against threatening (members of) out-groups. We explore the possibility that deficiencies in (components of) group psychology, seen in autistic spectrum disorder, schizophrenia, and borderline personality and social anxiety disorders, may be reduced by oxytocin administration. Avenues for new research are highlighted, and implications for the role of oxytocin in cooperation and competition within and between groups are discussed.