The brain actively reshapes our understanding of past events in light of new incoming information. In the current study, we ask how the brain supports this updating process during the encoding and recall of naturalistic stimuli. One group of participants watched a movie ('The Sixth Sense') with a cinematic 'twist' at the end that dramatically changed the interpretation of previous events. Next, participants were asked to verbally recall the movie events, taking into account the new 'twist' information. Most participants updated their recall to incorporate the twist. Two additional groups recalled the movie without having to update their memories during recall: one group never saw the twist; another group was exposed to the twist prior to the beginning of the movie, and thus the twist information was incorporated both during encoding and recall. We found that providing participants with information about the twist beforehand altered neural response patterns during movie-viewing in the default mode network (DMN). Moreover, presenting participants with the twist at the end of the movie changed the neural representation of the previously-encoded information during recall in a subset of DMN regions. Further evidence for this transformation was obtained by comparing the neural activation patterns during encoding and recall and correlating them with behavioral signatures of memory updating. Our results demonstrate that neural representations of past events encoded in the DMN are dynamically integrated with new information that reshapes our understanding in natural contexts.