The purpose of the current experiment was to examine the functional connectivity of the hippocampus during encoding in young and old adults, and the way in which this connectivity was related to recognition performance. Functional connectivity was defined as the correlation between activity in the hippocampus and activity in the rest of the brain, as measured by neuroimaging. During encoding of words and pictures of objects in young adults, hippocampal activity was correlated with activity in the ventral prefrontal and extrastriate regions, and increased activity in all these regions was associated with better recognition. In contrast, older adults showed correlations between hippocampal activity and the dorsolateral prefrontal and parietal regions, and positive correlations between activity in these regions and better memory performance. This ventral/dorsal distinction suggests a shift in the cognitive resources used with age from more perceptually based processes to those involved in executive and organizational functions. The results of this study provide evidence that aging is associated with alterations in hippocampal function, including how it is functionally connected with prefrontal cortex, and that these alterations have an impact on memory performance.