The capacity to perceive internal bodily states is linked to emotional awareness and effective emotional regulation. We explore individual differences in emotional awareness in relation to the fading affect bias (FAB), which refers to the greater dwindling of unpleasant compared to pleasant emotions in autobiographical memory. We consider interoceptive awareness and alexithymia in relation to the FAB, and private event rehearsal as a mediating process. With increasing interoceptive awareness, there was an enhanced FAB, but with increasing alexithymia, there was a decreased FAB. Further, the effects of interoceptive awareness were partially mediated by private rehearsal of pleasant events. We provide novel evidence that capacity for emotional awareness and thus effective processing is an important factor predictive of the FAB. Moreover, our results imply an important role for maintaining positive affect in the FAB. Our findings offer new insights into the effects of interoception and alexithymia on autobiographical memory, and support concepts of the FAB emerging as a result of adaptive emotional regulation processes.