It has been proposed that the hippocampal theta rhythm (4-7 Hz) can contribute to memory formation by separating encoding (storage) and retrieval of memories into different functional half-cycles (Hasselmo et al. (2002) Neural Comput 14:793-817). We investigate, via computer simulations, the biophysical mechanisms by which storage and recall of spatio-temporal input patterns are achieved by the CA1 microcircuitry. A model of the CA1 microcircuit is presented that uses biophysical representations of the major cell types, including pyramidal (P) cells and four types of inhibitory interneurons: basket (B) cells, axo-axonic (AA) cells, bistratified (BS) cells and oriens lacunosum-moleculare (OLM) cells. Inputs to the network come from the entorhinal cortex (EC), the CA3 Schaffer collaterals and medial septum. The EC input provides the sensory information, whereas all other inputs provide context and timing information. Septal input provides timing information for phasing storage and recall. Storage is accomplished via a local STDP mediated hetero-association of the EC input pattern and the incoming CA3 input pattern on the CA1 pyramidal cell target synapses. The model simulates the timing of firing of different hippocampal cell types relative to the theta rhythm in anesthetized animals and proposes experimentally confirmed functional roles for the different classes of inhibitory interneurons in the storage and recall cycles (Klausberger et al., (2003, 2004) Nature 421:844-848, Nat Neurosci 7:41-47). Measures of recall performance of new and previously stored input patterns in the presence or absence of various inhibitory interneurons are employed to quantitatively test the performance of our model. Finally, the mean recall quality of the CA1 microcircuit is tested as the number of stored patterns is increased.