Event-related functional magnetic resonance imaging was used to study the effects of healthy aging on hippocampal and rhinal memory functions. Memory for past events can be based on retrieval accompanied by specific contextual details (recollection) or on the feeling that an event is old or new without the recovery of contextual details (familiarity). There is evidence that recollection is more dependent on hippocampus, whereas familiarity is more dependent on the rhinal cortex, and that healthy aging has greater effects on recollection than on familiarity. However, little evidence is available about the neural correlates of these effects. Here, we isolated activity associated with recollection and familiarity by distinguishing between linear and quasi-exponential "perceived oldness" functions derived from recognition confidence levels. The main finding was a double dissociation within the medial temporal lobes between recollection-related activity in hippocampus, which was reduced by aging, and familiarity-related activity in rhinal cortex, which was increased by aging. In addition, age dissociations were found within parietal and posterior midline regions. Finally, aging reduced functional connectivity within a hippocampal-retrosplenial/parietotemporal network but increased connectivity within a rhinal-frontal network. These findings indicate that older adults compensate for hippocampal deficits by relying more on rhinal cortex, possibly through a top-down frontal modulation. This finding has important clinical implications because early Alzheimer's disease impairs both hippocampus and rhinal cortex.