Stress can powerfully influence episodic memory, often enhancing memory encoding for emotionally salient information. These stress-induced memory enhancements stand at odds with demonstrations that stress and the stress-related hormone cortisol can negatively affect the hippocampus, a brain region important for episodic memory encoding. To resolve this apparent conflict and determine whether and how the hippocampus supports memory encoding under cortisol, we combined behavioral assays of associative memory, high-resolution fMRI, and pharmacological manipulation of cortisol in a within-participant, double-blinded procedure (in both sexes). Behaviorally, hydrocortisone promoted the encoding of subjectively arousing, positive associative memories. Neurally, hydrocortisone led to enhanced functional connectivity between hippocampal subregions, which predicted subsequent memory enhancements for emotional associations. Cortisol also modified the relationship between hippocampal representations and associative memory: whereas hippocampal signatures of distinctiveness predicted memory under placebo, relative integration predicted memory under cortisol. Together, these data provide novel evidence that the human hippocampus contains the necessary machinery to support emotional associative memory enhancements under cortisol.SIGNIFICANCE STATEMENT Our daily lives are filled with stressful events, which powerfully shape the way we form episodic memories. For example, stress and stress-related hormones can enhance our memory for emotional events. However, the mechanisms underlying these memory benefits are unclear. In the current study, we combined functional neuroimaging, behavioral tests of memory, and double-blind, placebo-controlled hydrocortisone administration to uncover the effects of the stress-related hormone cortisol on the function of the human hippocampus, a brain region important for episodic memory. We identified novel ways in which cortisol can enhance hippocampal function to promote emotional memories, highlighting the adaptive role of cortisol in shaping memory formation.