Episodic memory is characterized by rapid formation of new associations that bind information within individual episodes. A powerful aspect of episodic memory is the ability to flexibly apply and recombine information from past experience to guide new behavior. A critical question for memory research is how medial temporal lobe (MTL) and prefrontal cortex (PFC), regions implicated in rapid within-episode binding, further support cross-episode binding in service of mnemonic flexibility. We set to answer this question using an associative inference task in humans that required rapid binding of information across overlapping experiences (AB, BC) to enable successful transfer to novel test probes (AC). Within regions predicting subsequent associative memory for directly learned associations, encoding activation in MTL, including hippocampus and parahippocampal cortex, uniquely predicted success on novel transfer trials both within and across participants, consistent with an integrative encoding mechanism where overlapping experiences are linked into a combined representation during learning. In contrast, during retrieval, PFC activation predicted trial-by-trial transfer success while MTL predicted transfer performance across participants. Moreover, increased MTL-PFC coupling was observed during novel transfer trials compared with retrieval of directly learned associations. These findings suggest that inferential processes support transfer of rapidly acquired experiences to novel events during retrieval where multiple memories are recalled and flexibly recombined in service of successful behavior. Together, these results demonstrate distinct encoding and retrieval mechanisms that support mnemonic flexibility, revealing a unique role for MTL regions in cross-episode binding during encoding and engagement of interactive MTL-PFC processes during flexible transfer at test.