Depression is associated with a cognitive bias towards negative information and away from positive information. This biased emotion processing may underlie core depression symptoms, including persistent feelings of sadness or low mood and a reduced capacity to experience pleasure. The neural mechanisms responsible for this biased emotion processing remain unknown. Here, we had a unique opportunity to record stereotactic electroencephalography (sEEG) signals in the amygdala and prefrontal cortex (PFC) from 5 treatment-resistant depression (TRD) patients and 12 epilepsy patients (as control) while they participated in an affective bias task in which happy and sad faces were rated. First, compared with the control group, patients with TRD showed increased amygdala responses to sad faces in the early stage (around 300 ms) and decreased amygdala responses to happy faces in the late stage (around 600 ms) following the onset of faces. Further, during the late stage of happy face processing, alpha-band activity in PFC as well as alpha-phase locking between the amygdala and PFC were significantly greater in TRD patients compared to the controls. Second, after deep brain stimulation (DBS) delivered to bilateral subcallosal cingulate (SCC) and ventral capsule/ventral striatum (VC/VS), atypical amygdala and PFC processing of happy faces in TRD patients remitted toward the normative pattern. The increased amygdala activation during the early stage of sad face processing suggests an overactive bottom-up processing system in TRD. Meanwhile, the reduced amygdala response during the late stage of happy face processing could be attributed to inhibition by PFC through alpha-band oscillation, which can be released by DBS in SCC and VC/VS.