Healthy aging has been shown to modulate the neural circuitry underlying simple declarative memory; however, the functional impact of negative stimulus valence on these changes has not been fully investigated. Using BOLD fMRI, we explored the effects of aging on behavioral performance, neural activity, and functional coupling during the encoding and retrieval of novel aversive and neutral scenes. Behaviorally, there was a main effect of valence with better recognition performance for aversive greater than neutral stimuli in both age groups. There was also a main effect of age with better recognition performance in younger participants compared to older participants. At the imaging level, there was a main effect of valence with increased activity in the medial-temporal lobe (amygdala and hippocampus) during both encoding and retrieval of aversive relative to neutral stimuli. There was also a main effect of age with older participants showing decreased engagement of medial-temporal lobe structures and increased engagement of prefrontal structures during both encoding and retrieval sessions. Interestingly, older participants presented with relatively decreased amygdalar–hippocampal coupling and increased amygdalar–prefrontal coupling when compared to younger participants. Furthermore, older participants showed increased activation in prefrontal cortices and decreased activation in the amygdala when contrasting the retrieval of aversive and neutral scenes. These results suggest that although normal aging is associated with a decline in declarative memory with alterations in the neural activity and connectivity of brain regions underlying simple declarative memory, memory for aversive stimuli is relatively better preserved than for neutral stimuli, possibly through greater compensatory prefrontal cortical activity.