The prefrontal cortex has been implicated in strategic memory processes, including the ability to use semantic organizational strategies to facilitate episodic learning. An important feature of these strategies is the way they are applied in novel or ambiguous situations--failure to initiate effective strategies sponaneously in unstructured settings is a central cognitive deficit in patients with frontal lobe disorders. The current study examined strategic memory with PET and a verbal encoding paradigm that manipulated semantic organization in three encoding conditions: spontaneous, directed, and unrelated. During the spontaneous condition, subjects heard 24 words that were related in four categories but presented in mixed order, and they were not informed of this structure beforehand. Any semantic reorganization was, therefore initiated spontaneously by the subject. In the directed condition, subjects were given a different list of 24 related words and were explicitly instructed to notice relationships and mentally group words together to improve memory. The unrelated list consisted of 24 unrelated words. Behavioural measures included semantic clustering, which assessed active regrouping of words into semantic categories during free recall. In graded PET contrasts (directed > spontaneous > unrelated), two distinct activations were found in left inferior prefrontal cortex (inferior frontal gyrus) and left dorsolateral prefrontal cortex (middle frontal gyrus), corresponding to levels of semantic clustering observed in the behavioural data. Additional covariate analyses in the first spontaneous condition indicated that blood flow in orbitofrontal cortex (OFC) was strongly correlated with semantic clustering scores during immediate free recall. Thus, blood flow in OFC during encoding predicted which subjects would spontaneously initiate effective strategies during free recall. Our findings indicate that OFC performs an important, and previously unappreciated, role in strategic memory by supporting the early mobilization of effective behavioural strategies in novel or ambiguous situations. Once initiated, lateral regions of left prefrontal cortex control verbal semantic organization.