Sutherland and Rudy ([1989] Psychobiology 17:129-144) proposed that the hippocampal system is critical to normal learning and memory because of its function as the central part of a configural association system. This system constructs a unique representation of the joint occurrence of the independent elements of a compound. There is evidence consistent with the theory's predictions, however, there also are data that unambiguously demonstrate that, under some conditions, animals lacking an intact hippocampal system acquire configural associations. Thus, Sutherland and Rudy's fundamental assumption cannot be correct. To integrate the supporting and contradictory data, we propose two simple modifications of our position: 1) The critical neural system for configural associations is in cortical circuitry outside the hippocampus, and 2) the output from the hippocampal formation contributes to configural processing by selectively enhancing, thereby making more salient, cortical units representing stimulus conjunctions. This enhancement has two important effects: 1) It decreases the similarity between the configural units representing the co-occurrence of cues and the units representing the cues, and 2) It increases the rate at which the configural units can acquire associative strength. The modified theory explains why damage to the hippocampal formation only impairs learning on a subset of nonlinear discrimination problems. It also integrates recent data on the effects of hippocampal formation damage on conditioning involving context cues and makes novel predictions about performance on nonlinear discrimination problems and place learning.