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Sensing others’ emotions through subtle facial expressions is a highly important social skill. We investigated the effects of intranasal oxytocin treatment on the evaluation of explicit and ‘hidden’ emotional expressions and related the results to individual differences in sensitivity to others’ subtle expressions of anger and happiness. Forty healthy volunteers participated in this double-blind, placebo-controlled crossover study, which shows that a single dose of intranasal oxytocin (40 IU) enhanced or ‘sharpened’ evaluative processing of others’ positive and negative facial expression for both explicit and hidden emotional information. Our results point to mechanisms that could underpin oxytocin’s prosocial effects in humans. Importantly, individual differences in baseline emotional sensitivity predicted oxytocin’s effects on the ability to sense differences between faces with hidden emotional information. Participants with low emotional sensitivity showed greater oxytocin-induced improvement. These participants also showed larger task-related pupil dilation, suggesting that they also allocated the most attentional resources to the task. Overall, oxytocin treatment enhanced stimulus-induced pupil dilation, consistent with oxytocin enhancement of attention towards socially relevant stimuli. Since pupil dilation can be associated with increased attractiveness and approach behaviour, this effect could also represent a mechanism by which oxytocin increases human affiliation.