A parieto-medial temporal pathway is thought to underlie spatial navigation in humans. fMRI was used to assess the role of this pathway, including the hippocampus, in the cognitive processes likely to underlie navigation based on environmental cues. Participants completed a short-term spatial memory task in virtual space, which required no navigation but involved the recognition of a target location from a foil location based on environmental landmarks. The results showed that spatial memory retrieval based on environmental landmarks was indeed associated with increased signal in regions of the parieto-medial temporal pathway, including the superior parietal cortex, the retrosplenial cortex, and the lingual gyrus. However, the hippocampus demonstrated a signal decrease below the fixation baseline during landmark-based retrieval, whereas there was no signal change from baseline during retrieval based on viewer position. In a discussion of the origins of such negative BOLD response in the hippocampus, we consider both a suppression of default activity and an increase in activity without a corresponding boost in CBF as possible mechanisms.