Understanding neurobiological characteristics of cognitive dysfunction in distinct psychiatric disorders remains challenging. In this secondary data analysis, we examined neurobiological differences in brain response during working memory updating among individuals with bipolar disorder (BD), those with unipolar depression (UD), and healthy controls (HC). Individuals between 18–45 years of age with BD (n = 100), UD (n = 109), and HC (n = 172) were scanned using fMRI while performing 0-back (easy) and 2-back (difficult) tasks with letters as the stimuli and happy, fearful, or neutral faces as distractors. The 2(n-back) × 3(groups) × 3(distractors) ANCOVA examined reaction time (RT), accuracy, and brain activation during the task. HC showed more accurate and faster responses than individuals with BD and UD. Difficulty-related activation in the prefrontal, posterior parietal, paracingulate cortices, striatal, lateral occipital, precuneus, and thalamic regions differed among groups. Individuals with BD showed significantly lower difficulty-related activation differences in the left lateral occipital and the right paracingulate cortices than those with UD. In individuals with BD, greater difficulty-related worsening in accuracy was associated with smaller activity changes in the right precuneus, while greater difficulty-related slowing in RT was associated with smaller activity changes in the prefrontal, frontal opercular, paracingulate, posterior parietal, and lateral occipital cortices. Measures of current depression and mania did not correlate with the difficulty-related brain activation differences in either group. Our findings suggest that the alterations in the working memory circuitry may be a trait characteristic of reduced working memory capacity in mood disorders. Aberrant patterns of activation in the left lateral occipital and paracingulate cortices may be specific to BD.