Previous empirical work suggests that emotion can influence accuracy and cognitive biases underlying recognition memory, depending on the experimental conditions. The current study examines the effects of arousal and valence on delayed recognition memory using the diffusion model, which allows the separation of two decision biases thought to underlie memory: response bias and memory bias. Memory bias has not been given much attention in the literature but can provide insight into the retrieval dynamics of emotion modulated memory. Participants viewed emotional pictorial stimuli; half were given a recognition test 1-day later and the other half 7-days later. Analyses revealed that emotional valence generally evokes liberal responding, whereas high arousal evokes liberal responding only at a short retention interval. The memory bias analyses indicated that participants experienced greater familiarity with high-arousal compared to low-arousal items and this pattern became more pronounced as study-test lag increased; positive items evoke greater familiarity compared to negative and this pattern remained stable across retention interval. The findings provide insight into the separate contributions of valence and arousal to the cognitive mechanisms underlying delayed emotion modulated memory.