Aging is associated with deterioration in dentate gyrus (DG) and CA3, both crucial hippocampal subfields for age susceptible memory processes such as mnemonic discrimination (MD). Meanwhile, a single aerobic exercise session alters DG/CA3 function and neural activity in both rats and younger adults and can elicit short-term microstructural alterations in the hippocampus of older adults. However, our understanding of the effects of acute exercise on hippocampal subfield integrity via function and microstructure in older adults is limited. Thus, a within subject-design was employed to determine if 20-min of moderate to vigorous aerobic exercise alters bilateral hippocampal subfield function and microstructure using high-resolution functional magnetic resonance imaging (fMRI) during an MD task (n = 35) and high angular resolution multi-shell diffusion imaging (n = 31), in healthy older adults, compared to seated rest. Following the exercise condition, participants exhibited poorer MD performance, particularly when their perception of effort was higher. Exercise was also related to lower MD-related activity within the DG/CA3 but not CA1 subfield. Finally, after controlling for whole brain gray matter diffusion, exercise was associated with lower neurite density index (NDI) within the DG/CA3. However, exercise-related differences in DG/CA3 activity and NDI were not associated with differences in MD performance. Our results suggest moderate to vigorous aerobic exercise may temporarily inhibit MD performance, and suppress DG/CA3 MD-related activity and NDI, potentially through neuroinflammatory/glial processes. However, additional studies are needed to confirm whether these short-term changes in behavior and hippocampal subfield neurophysiology are beneficial and how they might relate to long-term exercise habits.