Korsakoff's syndrome is an organic brain disease, characterized by severe amnesia, that has been associated with olfactory perceptual deficits. Two experiments utilized normal observers to describe the effect of similarity on odor recognition memory and to develop methodology to measure odor discrimination and memory in patients with Korsakoff's disease. The results demonstrate an impaired capacity to discriminate between odors among patients with this disease that is not attributable to impaired sensitivity or to rapid decay of memory stores. These results are compared with results from animals with lesions affecting the medial layer of the mediodorsal thalamic nucleus and its neocortical projections. This structure is consistently damaged in Korsakoff's disease and receives a major input from primary olfactory cortex.