We remember a considerable number of personal experiences because we are frequently reminded of them, a process known as memory reactivation. Although memory reactivation helps to stabilize and update memories, reactivation may also introduce distortions if novel information becomes incorporated with memory. Here we used functional magnetic resonance imaging (fMRI) to investigate the neural mechanisms mediating reactivation-induced updating in memory for events experienced during a museum tour. During scanning, participants were shown target photographs to reactivate memories from the museum tour followed by a novel lure photograph from an alternate tour. Later, participants were presented with target and lure photographs and asked to determine whether the photographs showed a stop they visited during the tour. We used a subsequent memory analysis to examine neural recruitment during reactivation that was associated with later true and false memories. We predicted that the quality of reactivation, as determined by online ratings of subjective recollection, would increase subsequent true memories but also facilitate incorporation of the lure photograph, thereby increasing subsequent false memories. The fMRI results revealed that the quality of reactivation modulated subsequent true and false memories via recruitment of left posterior parahippocampal, bilateral retrosplenial, and bilateral posterior inferior parietal cortices. However, the timing of neural recruitment and the way in which memories were reactivated contributed to differences in whether memory reactivation led to distortions or not. These data reveal the neural mechanisms recruited during memory reactivation that modify how memories will be subsequently retrieved, supporting the flexible and dynamic aspects of memory.