Theories on the functions of the hippocampal system are based largely on two fundamental discoveries: the amnestic consequences of removing the hippocampus and associated structures in the famous patient H.M. and the observation that spiking activity of hippocampal neurons is associated with the spatial position of the rat. In the footsteps of these discoveries, many attempts were made to reconcile these seemingly disparate functions. Here we propose that mechanisms of memory and planning have evolved from mechanisms of navigation in the physical world and hypothesize that the neuronal algorithms underlying navigation in real and mental space are fundamentally the same. We review experimental data in support of this hypothesis and discuss how specific firing patterns and oscillatory dynamics in the entorhinal cortex and hippocampus can support both navigation and memory.