Declarative memory is remarkably adaptive in the way it maintains sensitivity to relative novelty in both unknown and highly familiar environments. However, the neural mechanisms underlying this contextual adaptation are poorly understood. On the basis of emerging links between novelty processing and reinforcement learning mechanisms, we hypothesized that responses to novelty will be adaptively scaled according to expected contextual probabilities of new and familiar events, in the same way that responses to prediction errors for rewards are scaled according to their expected range. Using functional magnetic resonance imaging in humans, we show that the influence of novelty and reward on memory formation in an incidental memory task is adaptively scaled and furthermore that the BOLD signal in orbital prefrontal and medial temporal cortices exhibits concomitant scaled adaptive coding. These findings demonstrate a new mechanism for adjusting gain and sensitivity in declarative memory in accordance with contextual probabilities and expectancies of future events. Hum Brain Mapp, 2010. © 2010 Wiley-Liss, Inc.