The prevalence of panic disorder in patients with chronic obstructive pulmonary disease (COPD) is up to 10 times greater than the overall population prevalence of 1.5–3.5%, and panic attacks are commonly experienced. When present, clinically significant anxiety decreases quality of life for COPD patients, and also increases health care costs. Therefore, understanding why COPD patients have such high rates of panic attacks and panic disorder is important for optimal management of COPD. The cognitive model of panic anxiety is the most widely accepted theory of panic attacks and panic disorder in physically healthy adults. According to this model, panic attacks occur when catastrophic misinterpretations of ambiguous physical sensations (such as shortness of breath or increased heart rate) increase arousal, creating a positive feedback loop that results in panic. As the major symptom of a terminal illness that threatens our most basic physical requirement, dyspnea in COPD is open to catastrophic misinterpretation. There is some experimental and clinical evidence for the applicability of the cognitive model of panic anxiety in COPD, and of the utility of cognitive behavior therapy (CBT), based on this model, for treating anxiety symptoms and panic attacks in COPD patients. However, there is much need for further studies. Evidence is increasing that mental health professionals, in collaboration with multi-disciplinary pulmonary teams, potentially have key roles to play in preventing and treating panic attacks and panic disorder in COPD patients. This review addresses diagnosis, epidemiology, theoretical conceptualizations, treatment, and recommendations for future research.