In adult dentate gyrus neurogenesis, the link between maturation of newborn neurons and their function, such as behavioral pattern separation, has remained puzzling. By analyzing a theoretical model, we show that the switch from excitation to inhibition of the GABAergic input onto maturing newborn cells is crucial for their proper functional integration. When the GABAergic input is excitatory, cooperativity drives the growth of synapses such that newborn cells become sensitive to stimuli similar to those that activate mature cells. When GABAergic input switches to inhibitory, competition pushes the configuration of synapses onto newborn cells towards stimuli that are different from previously stored ones. This enables the maturing newborn cells to code for concepts that are novel, yet similar to familiar ones. Our theory of newborn cell maturation explains both how adult-born dentate granule cells integrate into the preexisting network and why they promote separation of similar but not distinct patterns.