Perception and memory are imperfect reconstructions of reality. These reconstructions are prone to be influenced by several factors, which may result in false memories. A false memory is the recollection of an event, or details of an episode, that did not actually occur. Memory formation comprises at least three different sub-processes: encoding, consolidation and the retrieval of the learned material. All of these sub-processes are vulnerable for specific errors and consequently may result in false memories. Whereas, processes like imagery, self-referential encoding or spreading activation can lead to the formation of false memories at encoding, semantic generalization during sleep and updating processes due to misleading post event information, in particular, are relevant at the consolidation stage. Finally at the retrieval stage, monitoring processes, which are assumed to be essential to reject false memories, are of specific importance. Different neuro-cognitive processes have been linked to the formation of true and false memories. Most consistently the medial temporal lobe and the medial and lateral prefrontal cortex have been reported with regard to the formation of true and false memories. Despite the fact that all phases entailing memory formation, consolidation of stored information and retrieval processes, are relevant for the forming of false memories, most studies focused on either memory encoding or retrieval. Thus, future studies should try to integrate data from all phases to give a more comprehensive view on systematic memory distortions. An initial outline is developed within this review to connect the different memory stages and research strategies.