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Episodic memories are encoded by experience-activated neuronal ensembles that remain necessary and sufficient for recall. However, the temporal evolution of memory engrams after initial encoding is unclear. In this study, we employed computational and experimental approaches to examine how the neural composition and selectivity of engrams change with memory consolidation. Our spiking neural network model yielded testable predictions: memories transition from unselective to selective as neurons drop out of and drop into engrams; inhibitory activity during recall is essential for memory selectivity; and inhibitory synaptic plasticity during memory consolidation is critical for engrams to become selective. Using activity-dependent labeling, longitudinal calcium imaging and a combination of optogenetic and chemogenetic manipulations in mouse dentate gyrus, we conducted contextual fear conditioning experiments that supported our model's predictions. Our results reveal that memory engrams are dynamic and that changes in engram composition mediated by inhibitory plasticity are crucial for the emergence of memory selectivity.