Different structures within the medial-temporal lobe likely make distinct contributions to declarative memory. In particular, several current psychological and computational models of memory predict that the hippocampus and parahippocampal regions play different roles in the formation and retrieval of declarative memories [e.g., Norman, K. A., & O'Reilly, R. C. Modeling hippocampal and neocortical contributions to recognition memory: A complementary-learning systems approach. Psychological Review, 110, 611–646, 2003]. Here, we examined the neuronal firing patterns in these two regions during recognition memory. Recording directly from neurons in humans, we find that cells in both regions respond to novel stimuli with an increase in firing (excitation). However, already on the second presentation of a stimulus, neurons in these regions show very different firing patterns. In the parahippocampal region there is dramatic decrease in the number of cells responding to the stimuli, whereas in the hippocampus there is recruitment of a large subset of neurons showing inhibitory (decrease from baseline firing) responses. These results suggest that inhibition is a mechanism used by cells in the human hippocampus to support sparse coding in mnemonic processing. The findings also provide further evidence for the division of labor in the medial-temporal lobe with respect to declarative memory processes.