The generator coordinate (GC) method is a variational approach to the quantum many-body problem in which interacting many-body wave functions are constructed as superpositions of (generally nonorthogonal) eigenstates of auxiliary Hamiltonians containing a deformation parameter. This paper presents a time-dependent extension of the GC method as a new approach to improve existing approximations of the exchange-correlation (XC) potential in time-dependent density-functional theory (TDDFT). The time-dependent GC method is shown to be a conceptually and computationally simple tool to build memory effects into any existing adiabatic XC potential. As an illustration, the method is applied to driven parametric oscillations of two interacting electrons in a harmonic potential (Hooke's atom). It is demonstrated that a proper choice of time-dependent generator coordinates in conjunction with the adiabatic local-density approximation reproduces the exact linear and nonlinear two-electron dynamics quite accurately, including features associated with double excitations that cannot be captured by TDDFT in the adiabatic approximation.