The medial temporal lobe (MTL) plays an important role in memory encoding. The development and maturation of MTL and other brain regions involved in memory encoding are, however, poorly understood. We used functional magnetic resonance imaging to examine activation and effective connectivity of the MTL in children and adolescents during encoding of outdoor visual scenes. Here, we show that MTL response decreases with age whereas its connectivity with the left dorsolateral prefrontal cortex (PFC) increases with age. Our findings provide evidence for dissociable maturation of local and distributed memory encoding processes involving the MTL and furthermore suggest that increased functional interactions between the MTL and the PFC may underlie the development of more effective memory encoding strategies.