We tested 6- to 7-year-olds, 18- to 22-year-olds, and 67- to 74-year-olds on an associative memory task that consisted of knowledge-congruent and knowledge-incongruent object-scene pairs that were highly familiar to all age groups. We compared the 3 age groups on their memory congruency effect (i.e., better memory for knowledge-congruent associations) and on a schema bias score, which measures participants' tendency to commit knowledge-congruent memory errors. We found that prior knowledge similarly benefited memory for items encoded in a congruent context in all age groups. However, for associative memory, older adults and, to a lesser extent, children overrelied on their prior knowledge, as indicated by an enhanced congruency effect and schema bias. Functional MRI (fMRI) performed during memory encoding revealed an age-independent Memory × Congruency interaction in the ventromedial prefrontal cortex (vmPFC). Furthermore, the magnitude of vmPFC recruitment correlated positively with the schema bias. These findings suggest that older adults are most prone to rely on their prior knowledge for episodic memory decisions, but that children can also rely heavily on prior knowledge that they are well acquainted with. Furthermore, the fMRI results suggest that the vmPFC plays a key role in the assimilation of new information into existing knowledge structures across the entire life span. vmPFC recruitment leads to better memory for knowledge-congruent information but also to a heightened susceptibility to commit knowledge-congruent memory errors, in particular in children and older adults.