The epileptogenic network in temporal lobe epilepsy (TLE) contains structures of the primary and secondary olfactory cortex such as the piriform and entorhinal cortex, the amygdala, and the hippocampus. Olfactory auras and olfactory dysfunction are relevant symptoms of TLE. This study aims to characterize olfactory function in TLE using olfactory testing and olfactory functional magnetic resonance imaging (fMRI). We prospectively enrolled 20 individuals with unilateral TLE (age 45 ± 20 years [mean ± SD], 65% female, 90% right‐handed) and 20 healthy individuals (age 33 ± 15 years [mean ± SD], 35% female, 90% right‐handed). In the TLE group, the presumed seizure onset zone was left‐sided in 75%; in 45% of the individuals with TLE limbic encephalitis was the presumed etiology; and 15% of the individuals with TLE reported olfactory auras. Olfactory function was assessed with a Screening Sniffin’ Sticks Test (Burkhart, Wedel, Germany) during a pre‐assessment. During a pre‐testing, all individuals were asked to rate the intensity, valence, familiarity, and associated memory of five different odors (eugenol, vanillin, phenethyl alcohol, decanoic acid, valeric acid) and a control solution. During the fMRI experiment, all individuals repeatedly smelled eugenol (positively valenced odor), valeric acid (negatively valenced odor), and the control solution and were asked to rate odor intensity on a five‐point Likert scale. We acquired functional EPI sequences and structural images (T1, T2, FLAIR). Compared to healthy individuals, individuals with TLE rated the presented odors as more neutral (two‐sided Mann–Whitney U tests, FDR‐p < 0.05) and less familiar (two‐sided Mann–Whitney U tests, FDR‐p < 0.05). fMRI data analysis revealed a reduced response contrast in secondary olfactory areas (e.g., hippocampus) connected to the limbic system when comparing eugenol and valeric acid in individuals with TLE when compared with healthy individuals. However, no lateralization effect was obtained when calculating a lateralization index by the number of activated voxels in the olfactory system (two‐sided Mann–Whitney U test; U = 176.0; p = 0.525). TLE is characterized by olfactory dysfunction and associated with hypoactivation of secondary olfactory structures connected to the limbic system. These findings contribute to our understanding of the pathophysiology of TLE. This study was preregistered on OSF Registries (www.osf.io).