The current study used a novel scene paradigm to investigate the role of encoding schemas on memory. Specifically, the study examined the influence of a strong encoding schema on retrieval of both schematic and non-schematic information, as well as false memories for information associated with the schema. Additionally, the separate roles of recollection and familiarity in both veridical and false memory retrieval were examined. The study identified several novel results. First, while many common neural regions mediated both schematic and non-schematic retrieval success, schematic recollection exhibited greater activation in visual cortex and hippocampus, regions commonly shown to mediate detailed retrieval. More effortful cognitive control regions in the prefrontal and parietal cortices, on the other hand, supported non-schematic recollection, while lateral temporal cortices supported familiarity-based retrieval of non-schematic items. Second, both true and false recollection, as well as familiarity, were mediated by activity in left middle temporal gyrus, a region associated with semantic processing and retrieval of schematic gist. Moreover, activity in this region was greater for both false recollection and false familiarity, suggesting a greater reliance on lateral temporal cortices for retrieval of illusory memories, irrespective of memory strength. Consistent with previous false memory studies, visual cortex showed increased activity for true compared to false recollection, suggesting that visual cortices are critical for distinguishing between previously viewed targets and related lures at retrieval. Additionally, the absence of common visual activity between true and false retrieval suggests that, unlike previous studies utilizing visual stimuli, when false memories are predicated on schematic gist and not perceptual overlap, there is little reliance on visual processes during false memory retrieval. Finally, the medial temporal lobe exhibited an interesting dissociation, showing greater activity for true compared to false recollection, as well as for false compared to true familiarity. These results provided an indication as to how different types of items are retrieved when studied within a highly schematic context. Results both replicate and extend previous true and false memory findings, supporting the Fuzzy Trace Theory.