Previous memory research has exploited the perceptual similarities between lures and targets in order to evoke false memories. Nevertheless, while some studies have attempted to use lures that are objectively more similar than others, no study has systematically controlled for perceptual overlap between target and lure items and its role in accounting for false alarm rates or the neural processes underlying such perceptual false memories. The current study looked to fill this gap in the literature by using a face-morphing program to systematically control for the amount of perceptual overlap between lures and targets. Our results converge with previous studies in finding a pattern of differences between true and false memories. Most importantly, expanding upon this work, parametric analyses showed false memory activity increases with respect to the similarity between lures and targets within bilateral middle temporal gyri and right medial prefrontal cortex (mPFC). Moreover, this pattern of activation was unique to false memories and could not be accounted for by relatedness alone. Connectivity analyses further find that activity in the mPFC and left middle temporal gyrus co-vary, suggestive of gist-based monitoring within the context of false memories. Interestingly, neither the MTL nor the fusiform face area exhibited modulation as a function of target-lure relatedness. Overall, these results provide insight into the processes underlying false memories and further enhance our understanding of the role perceptual similarity plays in supporting false memories. (C) 2016 Elsevier Inc. All rights reserved.