Although episodic memory is typically impaired in older adults (OAs) compared to young adults (YAs), this deficit is attenuated when OAs can leverage their rich semantic knowledge, such as their knowledge of schemas. Memory is better for items consistent with pre-existing schemas and this effect is larger in OAs. Neuroimaging studies have associated schema use with the ventromedial prefrontal cortex (vmPFC) and hippocampus (HPC), but most of this research has been limited to YAs. This fMRI study investigated the neural mechanisms underlying how schemas boost episodic memory in OAs. Participants encoded scene-object pairs with varying congruency, and memory for the objects was tested the following day. Congruency with schemas enhanced object memory for YAs and, more substantially, for OAs. FMRI analyses examined how cortical modulation of HPC predicted subsequent memory. Congruency-related vmPFC modulation of left HPC enhanced subsequent memory in both age groups, while congruency-related modulation from angular gyrus (AG) boosted subsequent memory only in OAs. Individual differences in cortico-hippocampal modulations indicated that OAs preferentially used their semantic knowledge to facilitate encoding via an AG-HPC interaction, suggesting a compensatory mechanism. Collectively, our findings illustrate age-related differences in how schemas influence episodic memory encoding via distinct routes of cortico-hippocampal interactions.