Memory for contextual information and target-context integration are crucial for successful episodic memory formation and are impaired in patients with Korsakoff's syndrome. In this paper we review the evidence for the notion that a context memory deficit makes an important contribution to the amnesia in these patients. First, we focus on anterograde memory for contextual (spatial and temporal) information. Next, the use of contextual cues in memory retrieval is examined and their role in retrograde amnesia and confabulation. Evidence on the role of contextual cues and associations in working memory is discussed in relation to the underlying neurocognitive mechanisms and their dissociation from long-term encoding. Finally, we focus on implicit learning of contextual information in Korsakoff patients. It can be concluded that Korsakoff patients are impaired in the explicit processing of contextual information and in target-context binding, both in long-term (retrograde and anterograde) memory and in working memory. These results extend the context memory deficit hypothesis. In contrast, implicit contextual learning is relatively preserved in these patients. These findings are discussed in relation to evidence of dysfunction of the extended diencephalic-hippocampal memory circuit in Korsakoff's syndrome.