Tau deposition begins in the medial temporal lobe (MTL) in aging and Alzheimer's disease (AD), and MTL neural dysfunction is commonly observed in these groups. However, the association between tau and MTL neural activity has not been fully characterized. We investigated the effects of tau on repetition suppression, the reduction of activity for repeated stimulus presentations compared to novel stimuli. We used task-based functional MRI (fMRI) to assess MTL subregional activity in 21 young adults (YA) and 45 cognitively normal human older adults (OA; total sample: 37 females, 29 males). AD pathology was measured with position emission tomography (PET), using 18F-Flortaucipir for tau and 11C-Pittsburgh compound B (PiB) for amyloid-b (Ab). The MTL was segmented into six subregions using high-resolution structural images. We compared the effects of low tau pathology, restricted to entorhinal cortex and hippocampus (Tau- OA), to high tau pathology, also occurring in temporal and limbic regions (Tau1 OA). Low levels of tau (Tau- OA vs YA) were associated with reduced repetition suppression activity specifically in anterolateral entorhinal cortex (alEC) and hippocampus, the first regions to accumulate tau. High tau pathology (Tau1 vs Tau- OA) was associated with widespread reductions in repetition suppression across MTL. Further analyses indicated that reduced repetition suppression was driven by hyperactivity to repeated stimuli, rather than decreased activity to novel stimuli. Increased activation was associated with entorhinal tau, but not Ab. These findings reveal a link between tau deposition and neural dysfunction in MTL, in which tau-related hyperactivity prevents deactivation to repeated stimuli, leading to reduced repetition suppression.