One of the most fascinating questions in psychology and neuroscience pertains to how young children gain the capacity to remember their past. Early hippocampal processes have been implicated in this ability, but a lack of viable methods has hindered assessments of their contribution in early human development. We employed a functional magnetic resonance imaging paradigm that captures memory-related hippocampal function during natural nocturnal sleep in toddlers. Our results provide direct evidence of a connection between hippocampal function and early memory ability. This experimental approach overcomes previous challenges and promises to pave the way to investigations linking changes in brain function to early development of learning mechanisms, including applications to typical and atypical development.