SUMMARYPrediction errors (PEs) have been known for decades to guide associative learning, but their role in episodic memory formation has been discovered only recently. Using an encoding task in which participants learned to predict which stimuli are followed by aversive shocks, combined with univariate, multivoxel, and large-scale network analyses of fMRI data, we show that enhanced memory for events associated with negative PEs was linked to reduced hippocampal responses to PEs and increased crosstalk between the ‘salience network’ and a frontoparietal network commonly implicated in memory formation for events that are in line with prior expectation. These PE-related effects could not be explained by mere changes in physiological arousal or the prediction itself. Our results suggest that superior memory for events associated with high PEs is driven by a distinct neural mechanism that might serve to set memories of high PE events apart from those with expected outcomes.