A central function of memory is to permit an organism to distinguish between stimuli that have been previously encountered and those that are novel. Although the medial temporal lobe (which includes the hippocampus and surrounding perirhinal, parahippocampal, and entorhinal cortices) is known to be crucial for recognition memory, controversy remains regarding how the specific subregions within the medial temporal lobe contribute to recognition. We used event-related functional MRI to examine the relation between activation in distinct medial temporal lobe subregions during memory formation and the ability (i) to later recognize an item as previously encountered (item recognition) and (ii) to later recollect specific contextual details about the prior encounter (source recollection). Encoding activation in hippocampus and in posterior parahippocampal cortex predicted later source recollection, but was uncorrelated with item recognition. In contrast, encoding activation in perirhinal cortex predicted later item recognition, but not subsequent source recollection. These outcomes suggest that the subregions within the medial temporal lobe subserve distinct, but complementary, learning mechanisms.