The tau protein aggregates in aging and Alzheimer disease and may lead to memory loss through disruption of medial temporal lobe (MTL)-dependent memory systems. Here, we investigated tau-mediated mechanisms of hippocampal dysfunction that underlie the expression of episodic memory decline using fMRI measures of hippocampal local coherence (regional homogeneity; ReHo), distant functional connectivity and tau-PET. We show that age and tau pathology are related to higher hippocampal ReHo. Functional disconnection between the hippocampus and other components of the MTL memory system, particularly an anterior-temporal network specialized for object memory, is also associated with higher hippocampal ReHo and greater tau burden in anterior-temporal regions. These associations are not observed in the posteromedial network, specialized for context/spatial information. Higher hippocampal ReHo predicts worse memory performance. These findings suggest that tau pathology plays a role in disconnecting the hippocampus from specific MTL memory systems leading to increased local coherence and memory decline.