The hippocampus appears to be crucial for long-term episodic memory, yet its precise role remains elusive. Electrophysiological studies in rodents offer a useful starting point for developing models of hippocampal processing in the spatial domain. Here we review one such model that points to an essential role for the hippocampus in the construction of mental images. We explain how this neural-level mechanistic account addresses some of the current controversies in the field, such as the role of the hippocampus in imagery and short-term memory, and discuss its broader implications for the neural bases of episodic memory.