Event-related potentials (ERPs) were recorded while older and younger adults were engaged in a source monitoring task. After studying a list of words, participants were presented with a recognition test during which some of the new words were repeated, rendering them as familiar as the study words. Instructions at test indicated whether the goal was to select the previously studied words or the repeated test items. Behaviorally, the younger adults were less likely to make source monitoring errors. ERPs, averaged only for correct trials, indicated that younger adults produced late positivities of greatest amplitude in response to whichever word type was designated as target irrespective of its familiarity. The ERPs of the older adults were generally less differentiated and their late positivities greater for recently repeated words irrespective of target designation. These results suggest that source monitoring in young adults is facilitated by their ability to allocate and withdraw attention from stimuli on the basis of task relevance rather than familiarity alone, and that this attentional flexibility declines with age.