The ability to flexibly adjust our decision making is crucial for navigating a complex world where optimal decisions depend on the current context. Crucially, it is thought that the bidirectional connection of the prefrontal cortex (PFC) and hippocampus (HPC) through the nucleus reuniens of the thalamus (nRE) is vital for coordinating context-dependent decisions. However, little is known about how interaction of PFC and HPC via nRE guides behaviour. To address this, we used a cued T-maze in mice, where a cue predicts a distal reward location, combined with circuit-specific modulation of nRE. Using circuit tracing, we found that largely non-overlapping nRE populations project only to either PFC or HPC. On this basis, we next investigated what role these parallel circuits in nRE play in behaviour. We found that acute inhibition of nRE projectors to HPC, but not to PFC, prevented mice from solving the cued T-maze, indicating that nRE projectors specifically to HPC are required for contextual inference. Interestingly, chronic inhibition of either population during or after learning improved performance, indicating that reducing interference between PFC and HPC aids in utilizing HPC for contextual inference. Finally, we used computational models of PFC and HPC which both learn models of the world, but PFC focuses only on the outcomes of behaviours, and found that manipulating their interaction as in our behavioural experiments reproduced our behavioural results. Together, our results indicate that nRE circuitry mediates the interaction between PFC and HPC, allowing for HPC-driven inference, while limiting interference.