In humans and in animals, some aged individuals are severely impaired in learning and memory capacity whereas others perform as well as young adults. In the present study, the spatial memory capacity of young and aged rats was characterized by the Morris water maze task, and then firing patterns of hippocampal "place cells" were assessed as the animals explored a familiar environment and a geometrically-altered version of the environment. Spatial representations of hippocampal cells in young and memory-intact aged rats changed upon exposure to the altered environment. In contrast, spatial representations of many cells in aged, memory-impaired rats were unaffected by the environmental alteration. Furthermore, combining all groups, the extent to which spatial representations distinguished the familiar and altered environments predicted learning capacity in the water maze. These findings suggest that a major component of memory impairment in aging may be the failure of the hippocampus to encode subtle differences in contextual information that differ across multiple experiences, such as the sequence of training trials in the water maze.