Whereas some older adults show significant cognitive deficits, others perform as well as young adults. We investigated the neural basis of these different aging patterns using positron emission tomography (PET). In PET and functional MRI (fMRI) studies, prefrontal cortex (PFC) activity tends to be less asymmetric in older than in younger adults (Hemispheric Asymmetry Reduction in Old Adults or HAROLD). This change may help counteract age-related neurocognitive decline (compensation hypothesis) or it may reflect an age-related difficulty in recruiting specialized neural mechanisms (dedifferentiation hypothesis). To compare these two hypotheses, we measured PFC activity in younger adults, low-performing older adults, and high-performing older adults during recall and source memory of recently studied words. Compared to recall, source memory was associated with right PFC activations in younger adults. Low-performing older adults recruited similar right PFC regions as young adults, but high-performing older adults engaged PFC regions bilaterally. Thus, consistent with the compensation hypothesis and inconsistent with the dedifferentiation hypothesis, a hemispheric asymmetry reduction was found in high-performing but not in low-performing older adults. The results suggest that low-performing older adults recruited a similar network as young adults but used it inefficiently, whereas high-performing older adults counteracted age-related neural decline through a plastic reorganization of neurocognitive networks.