Long-term memory can be based on general familiarity or detailed recollection. Although familiarity is thought to be a continuous/graded process, the nature of recollection is currently under debate. In the present functional MRI spatial source memory study, we evaluated the pattern of activity in the hippocampus to assess whether this region operates in a threshold/all-or-none or a continuous manner during recollection. During the study phase, abstract shapes were presented to the left or right of fixation. During the test phase, old and new shapes were presented at fixation, and participants classified each shape as old-left, old-right, or new, followed by a sure–unsure confidence rating. Accurate spatial memory for old-left shapes produced a single activation in the left hippocampus. The corresponding event-related activation profile revealed a threshold above which old-left-sure responses produced positive activity for old-left but not old-right shapes. This hippocampal activation profile was used to generate a source memory receiver operating characteristic that was adequately fit by a threshold model of recollection but was not adequately fit by a continuous model of recollection. By contrast, there was no evidence of a threshold in the behavioral response profile, which is consistent with previous behavioral source memory receiver operating characteristic results indicating that recollection is a continuous process. The present results indicate that the hippocampus can operate in a threshold manner during spatial source memory and further suggest that this discrete signal is transformed into a continuous process through the operation of other brain regions that also contribute to behavioral performance.