Investigations of age-related increases in false recognition have highlighted the tendencies of older adults to designate new conceptually similar visual stimuli as having been seen before. Studies have shown that older adults place different levels of attention on the conceptual and perceptual details of stimuli and these findings are the basis for most encoding theories of false recognition. It is not known whether there are age discrepancies in how similar items are perceived to be and whether older adults are able to attend to the distinguishing features in visual stimuli. The present study aimed to determine whether any age-differences existed between conceptual and perceptual similarity judgements. Two groups of older and younger adults rated the similarity of pairs of visual stimuli in either the conceptual or perceptual dimensions. Older adults rated the items as being more conceptually similar than the younger adults but there was no age difference between similarity judgements in the perceptual dimension. This inability to distinguish between categorically similar items lead to poor pattern separation at encoding and a subsequent shift to pattern completion at retrieval, resulting in increased rates of false recognition. Older adults are equally able to determine the distinctive perceptual features as younger adults, but they may not be able to attend to these details spontaneously. Future studies might determine whether attention has an effect on age differences in similarity judgements. These results will also be used in an fMRI study examining the encoding-related brain activations leading to verbatim and gist-based memory.