A neurobiological dual representation model of PTSD proposes that reduced hippocampus-dependent contextual processing contributes to intrusive imagery due to a loss of control over hippocampus-independent sensory and affective representations. We investigated whether PTSD sufferers show impaired allocentric spatial processing indicative of reduced hippocampal functioning. Trauma-exposed individuals with (N=29) and without (N=30) a diagnosis of PTSD completed two tests of spatial processing: a topographical recognition task comprising perceptual and memory components, and a test of memory for objects' locations within a virtual environment in which the test is from either the same viewpoint as presentation (solvable with egocentric memory) or a different viewpoint (requiring allocentric memory). Participants in the PTSD group performed significantly worse on allocentric spatial processing than trauma-exposed controls. Groups performed comparably on egocentric memory and non-spatial memory for lists of objects. Exposure to repeated incident trauma was also associated with significantly worse spatial processing in the PTSD group. Results show a selective impairment in allocentric spatial processing, implicating weak hippocampal functioning, as predicted by a neurobiological dual representation model of PTSD. These findings have important clinical implications for cognitive therapy.