Everyday life unfolds continuously, yet we tend to remember past experiences as discrete event sequences or episodes. Although this phenomenon has been well documented, the neuromechanisms that support the transformation of continuous experience into distinct and memorable episodes remain unknown. Here, we show that changes in context, or event boundaries, elicit a burst of autonomic arousal, as indexed by pupil dilation. Event boundaries also lead to the segmentation of adjacent episodes in later memory, evidenced by changes in memory for the temporal duration, order, and perceptual details of recent event sequences. These subjective and objective changes in temporal memory are also related to distinct temporal features of pupil dilations to boundaries as well as to the temporal stability of more prolonged pupil-linked arousal states. Collectively, our findings suggest that pupil measures reflect both stability and change in ongoing mental context representations, which in turn shape the temporal structure of memory.