False memories are often demonstrated using the misinformation paradigm, in which a person's recollection of a witnessed event is altered after exposure to misinformation about the event. The neural basis of this phenomenon, however, remains unknown. The authors used fMRI to investigate encoding processes during the viewing of an event and misinformation to see whether neural activity during either encoding phase could predict what would be remembered. fMRI data were collected as participants studied eight vignettes (Original Event phase). Shortly afterward, participants studied the same vignettes during scanning, but with changes to several details, serving as the misinformation (Misinformation phase). Two days later, their memories for the Original Event were assessed. Activity that subsequently led to true and false memories was examined during both encoding phases. Two interaction patterns between encoding phase (Original Event and Misinformation) and type of memory (true and false) were observed in MTL and PFC regions. In the left hippocampus tail and perirhinal cortex, a predictive item-encoding pattern was observed. During the Original Event phase, activity was greater for true than false memories, whereas during the Misinformation phase, activity was greater for false than true memories. In other regions, a pattern suggestive of source encoding was observed, in which activity for false memories was greater during the Original Event phase than the Misinformation phase. Together, these results suggest that encoding processes play a critical role in determining true and false memory outcome in misinformation paradigms. (Contains 4 figures and 2 tables.)