Flexible retrieval mechanisms that allow us to infer relationships across events may also lead to memory errors or distortion when details of one event are misattributed to the related event. Here, we tested how making successful inferences alters representation of overlapping events, leading to false memories. Participants encoded overlapping associations ('AB' and 'BC'), each of which was superimposed on different indoor and outdoor scenes that were pre-exposed prior to associative learning. Participants were subsequently tested on both the directly learned pairs ('AB' and 'BC') and inferred relationships across pairs ('AC'). We predicted that when people make a correct inference, features associated with overlapping events may become integrated in memory. To test this hypothesis, participants completed a final detailed retrieval test, in which they had to recall the scene associated with initially learned 'AB' pairs (or 'BC' pairs). We found that the outcome of inference decisions impacted the degree to which neural patterns elicited during detailed 'AB' retrieval reflected reinstatement of the scene associated with the overlapping 'BC' event. After successful inference, neural patterns in the anterior hippocampus, posterior medial prefrontal cortex, and our content-reinstatement region (left inferior temporal gyrus) were more similar to the overlapping, yet incorrect 'BC' context relative to after unsuccessful inference. Further, greater hippocampal activity during inference was associated with greater reinstatement of the incorrect, overlapping context in our content-reinstatement region, which in turn tracked contextual misattributions during detailed retrieval. These results suggest recombining memories during successful inference can lead to misattribution of contextual details across related events, resulting in false memories.