Traumatic brain injury leads to cellular and circuit changes in the dentate gyrus, a gateway to hippocampal information processing. Intrinsic granule cell firing properties and strong feedback inhibition in the dentate are proposed as critical to its ability to generate unique representation of similar inputs by a process known as pattern separation. Here we evaluate the impact of brain injury on cellular decorrelation of temporally patterned inputs in slices and behavioral discrimination of spatial locations in vivo one week after concussive lateral fluid percussion injury (FPI) in mice. Despite posttraumatic increases in perforant path evoked excitatory drive to granule cells and enhanced ΔFosB labeling, indicating sustained increase in excitability, the reliability of granule cell spiking was not compromised after FPI. Although granule cells continued to effectively decorrelate output spike trains recorded in response to similar temporally patterned input sets after FPI, their ability to decorrelate highly similar input patterns was reduced. In parallel, encoding of similar spatial locations in a novel object location task that involves the dentate inhibitory circuits was impaired one week after FPI. Injury induced changes in pattern separation were accompanied by loss of somatostatin expressing inhibitory neurons in the hilus. Together, these data suggest that the early posttraumatic changes in the dentate circuit undermine dentate circuit decorrelation of temporal input patterns as well as behavioral discrimination of similar spatial locations, both of which could contribute to deficits in episodic memory.