An adaptive memory system rarely learns information tabula rasa, but rather builds on prior knowledge to facilitate learning. How prior knowledge influences the neural representation of novel associations remains unknown. Here, participants associated pairs of faces in two conditions: a famous, highly familiar face with a novel face or two novel faces while undergoing fMRI. We examine multivoxel activity patterns corresponding to individual faces before and after learning. The activity patterns representing members of famous-novel pairs becomes separated in the hippocampus, that is, more distinct from one another through learning, in striking contrast to paired novel faces that become similar. In the left inferior frontal gyrus, however, prior knowledge leads to integration, and in a specific direction: the representation of the novel face becomes similar to that of the famous face after learning, suggesting assimilation of new into old memories. We propose that hippocampal separation might resolve interference between existing and newly learned information, allowing cortical assimilation. Thus, associative learning with versus without prior knowledge relies on radically different computations.