Previous studies on the neurocognitive impact of cannabis use have found working and declarative memory deficits that tend to normalize with abstinence. An unexplored aspect of cognitive function in chronic cannabis users is the ability to distinguish between veridical and illusory memories, a crucial aspect of reality monitoring that relies on adequate memory function and cognitive control. Using functional magnetic resonance imaging, we show that abstinent cannabis users have an increased susceptibility to false memories, failing to identify lure stimuli as events that never occurred. In addition to impaired performance, cannabis users display reduced activation in areas associated with memory processing within the lateral and medial temporal lobe (MTL), and in parietal and frontal brain regions involved in attention and performance monitoring. Furthermore, cannabis consumption was inversely correlated with MTL activity, suggesting that the drug is especially detrimental to the episodic aspects of memory. These findings indicate that cannabis users have an increased susceptibility to memory distortions even when abstinent and drug-free, suggesting a long-lasting compromise of memory and cognitive control mechanisms involved in reality monitoring.