In the present study, we examined whether emotional valence modulates the neural processes that are engaged during the encoding of information that is later vividly remembered versus that which is only known to be familiar. Participants underwent an fMRI scan while viewing positive, negative, and neutral stimuli. Later, recognized items were labeled as either remembered or known. Negative items that were later vividly remembered recruited temporo-occipital regions associated with sensory processing more than did positive or neutral items that were vividly remembered. The encoding of positive information later known recruited the cingulate gyrus and bilateral frontal and parietal areas--regions associated with episodic and semantic retrieval and self-referential processing--more than did the encoding of negative or neutral items that were later known. These results suggest that memories for negative items may be vividly recollected due to increased sensory processing during encoding, whereas enhanced gist-based processing of positive information may lead to increased feelings of familiarity.