Memories are stored by ensembles of neurons active at the time of encoding. How neurons composing these ensembles are selected and eventually transformed in the cellular substrate of memory is however, unknown. Here, we study the role of inhibitory microcircuits in the allocation of memory in the Dentate Gyrus (DG) of the hippocampus. We reveal that granule cells (GCs) of the DG are in competition between each other during formation of a contextual fear memory. Active neurons of the memory ensemble trigger the activity of somatostatin INs that in turn prevent neighbouring GCs to become part of it and determine memory stability. Moreover, we show that GABAergic synapses in GCs and SST+ INs determine the size of the active ensemble and memory stability. Altogether we reveal two different components of the inhibitory system of the DG that control allocation of memory in hippocampal circuits: INs and GABAergic synapses.