Rate remapping is a recently revealed neural code in which sensory information modulates the firing rate of hippocampal place cells. The mechanism underlying rate remapping is unknown. Its characteristic modulation, however, must arise from the interaction of the two major inputs to the hippocampus, the medial entorhinal cortex (MEC), in which grid cells represent the spatial position of the rat, and the lateral entorhinal cortex (LEC), in which cells represent the sensory properties of the environment. We have used computational methods to elucidate the mechanism by which this interaction produces rate remapping. We show that the convergence of LEC and MEC inputs, in conjunction with a competitive network process mediated by feedback inhibition, can account quantitatively for this phenomenon. The same principle accounts for why different place fields of the same cell vary independently as sensory information is altered. Our results show that rate remapping can be explained in terms of known mechanisms.