While prediction errors (PEs) have long been recognized as critical in associative learning, emerging evidence indicates their significant role in episodic memory formation. This series of four experiments sought to elucidate the cognitive mechanisms underlying the enhancing effects of PEs related to aversive events on memory for surrounding neutral events. Specifically, we aimed to determine whether these PE effects are specific to predictive stimuli preceding the PE or if PEs create a transient window of enhanced, unselective memory formation. In a combined incidental encoding-fear learning task, participants (n=xxx) estimated aversive shock probabilities after unique stimuli. Physiological arousal and explicit PEs were measured during encoding to predict recognition memory tested either immediately after encoding (Experiment 3) or 24 hours later (Experiments 1-4). Our results show that PE-driven memory enhancement extends beyond predictive stimuli preceding the PE event to those encountered afterward. Furthermore, the retroactive memory enhancement induced by PEs may extend back longer than previously assumed, impacting stimuli presented 10 seconds before the PE. Importantly, our findings reveal that PE-related memory enhancement is specific to predictive stimuli, with uninformative stimuli not benefiting from PEs and even interfering with the PE-driven memory enhancement. This pattern demonstrates that PE effects are not unspecific but that PEs enhance memory for predictive stimuli encountered around a PE event. Notably, memory-enhancing effects of PEs persist even when controlling for changes in arousal. These findings provide insights into the cognitive mechanisms of PE-induced enhancements of memory, with potential implications for understanding aberrant emotional memory in fear-related disorders.