Our perception of time depends on multiple psychological processes that allow us to anticipate events. In this study, we used event-related functional magnetic resonance imaging (fMRI) to differentiate neural systems involved in formulating representations of time from processes associated with making decisions about their duration. A time perception task consisting of two randomly presented standard intervals was used to ensure that intervals were encoded on each trial and to enhance memory requirements. During the encoding phase of a trial, activation was observed in the right caudate nucleus, right inferior parietal cortex and left cerebellum. Activation in these regions correlated with timing sensitivity (coefficient of variation). In contrast, encoding-related activity in the right parahippocampus and hippocampus correlated with the bisection point and right precuneus activation was associated with a measure of memory distortion. Decision processes were studied by examining brain activation during the decision phase of a trial that was associated with the difficulty of interval discriminations. Activation in the right parahippocampus was greater for easier than harder discriminations. In contrast, activation was greater for harder than easier discriminations in systems involved in working memory (left middle-frontal and parietal cortex) and auditory rehearsal (left inferior-frontal and superior-temporal cortex). Activity in the auditory rehearsal network correlated with memory distortion. Our results support the independence of systems that mediate interval encoding and decision processes. The results also suggest that distortions in memory for time may be due to strategic processing in cortical systems involved in either encoding or rehearsal.