Studies of individuals with amnestic mild cognitive impairment (aMCI) have detected hyperactivity in the hippocampus during task-related functional magnetic resonance imaging (fMRI). Such elevated activation has been localized to the hippocampal dentate gyrus/CA3 (DG/CA3) during performance of a task designed to detect the computational contributions of those hippocampal circuits to episodic memory. The current investigation was conducted to test the hypothesis that greater hippocampal activation in aMCI represents a dysfunctional shift in the normal computational balance of the DG/CA3 regions, augmenting CA3-driven pattern completion at the expense of pattern separation mediated by the dentate gyrus. We tested this hypothesis using an intervention based on animal research demonstrating a beneficial effect on cognition by reducing excess hippocampal neural activity with low doses of the atypical anti-epileptic levetiracetam. In a within-subject design we assessed the effects of levetiracetam in three cohorts of aMCI participants, each receiving a different dose of levetiracetam. Elevated activation in the DG/CA3 region, together with impaired task performance, was detected in each aMCI cohort relative to an aged control group. We observed significant improvement in memory task performance under drug treatment relative to placebo in the aMCI cohorts at the 62.5 and 125 mg BID doses of levetiracetam. Drug treatment in those cohorts increased accuracy dependent on pattern separation processes and reduced errors attributable to an over-riding effect of pattern completion while normalizing fMRI activation in the DG/CA3 and entorhinal cortex. Similar to findings in animal studies, higher dosing at 250 mg BID had no significant benefit on either task performance or fMRI activation. Consistent with predictions based on the computational functions of the DG/CA3 elucidated in basic animal research, these data support a dysfunctional encoding mechanism detected by fMRI in individuals with aMCI and therapeutic intervention using fMRI to detect target engagement in response to treatment.