Stressful events frequently comprise both neutral and emotionally arousing information, yet the impact of stress on emotional and neutral events is still not fully understood. The hippocampus and frontal cortex have dense concentrations of receptors for stress hormones, such as cortisol, which at high levels can impair performance on hippocampally dependent memory tasks. Yet, the same stress hormones can facilitate memory for emotional information, which involves interactions between the hippocampus and amygdala. Here, we induced psychosocial stress prior to encoding and examined its long-term effects on memory for emotional and neutral episodes. The stress manipulation disrupted long-term memory for a neutral episode, but facilitated long-term memory for an equivalent emotional episode compared with a control condition. The stress manipulation also increased salivary cortisol, catecholamines as indicated by the presence of alpha-amylase, heart rate, and subjectively reported stress. Stressed subjects reported more false memories than nonstressed control subjects, and these false memories correlated positively with cortisol levels, providing evidence for a relationship between stress and false memory formation. Our results demonstrate that stress, when administered prior to encoding, produces different patterns of long-term remembering for neutral and emotional episodes. These differences likely emerge from differential actions of stress hormones on memory-relevant regions of the brain.