Moment-to-moment fluctuations in arousal can have large effects on learning and memory. For example, when neutral items are predictive of a later reward, they are often remembered better than neutral items without a reward association. This reward anticipation manipulation is thought to induce a heightened state of arousal, resulting in stronger encoding. It is unclear, however, whether these arousal-induced effects on encoding are ‘all-or-none’, or whether encoding precision varies from trial to trial with degree of arousal. Here, we examined whether trial-to-trial variability in reward-related pupil-linked arousal might correspond to variability in participants’ long-term memory encoding precision. We tested this using a location memory paradigm in which half of the to-be-encoded neutral items were linked to later monetary reward, while the other half had no reward association. After the encoding phase, we measured immediate item location memory on a continuous scale, allowing us to assess both memory success and memory precision. We found that pre-item baseline pupil size and pupil size during item encoding were not related to subsequent memory performance. In contrast, the anticipation of instrumental reward increased pupil size, and a smaller anticipatory increase in pupil size was linked to greater subsequent memory success but not memory precision.