The memorization of events and situations (episodic memory) requires the rapid formation of neural circuits for detecting bindings and binding errors. The formation of binding-error detectors, however, is problematic given their paradoxical behavior. A computational model is described that demonstrates how a transient pattern of activity representing an episode can lead to the rapid formation of circuits for detecting bindings and bindings errors as a result of long-term potentiation within structures whose architecture and circuitry match those of the hippocampal formation, a neural structure known to be critical to episodic memory formation.