The neural underpinnings of age-related memory impairment remain to be fully elucidated. Using a subsequent memory face-name functional MRI (fMRI) paradigm, young and old adults showed a similar magnitude and extent of hippocampal activation during successful associative encoding. Young adults demonstrated greater deactivation (task-induced decrease in BOLD signal) in medial parietal regions during successful compared with failed encoding, whereas old adults as a group did not demonstrate a differential pattern of deactivation between trial types. The failure of deactivation was particularly evident in old adults who performed poorly on the memory task. These low-performing old adults demonstrated greater hippocampal and prefrontal activation to achieve successful encoding trials, possibly as a compensatory response. Findings suggest that successful encoding requires the coordination of neural activity in hippocampal, prefrontal, and parietal regions, and that age-related memory impairment may be primarily related to a loss of deactivation in medial parietal regions.