This study attempts to integrate linguistic and discourse analysis to investigate the way narrators demarcate episodic boundaries in conversational settings and hypothesize about the kind of cognitive processes that might be involved in such an activity. In contrast to previous research in this area which predominately relies on experimentally designed text, this study draws on naturalistic data and relies on the notion that narrators in conversational setting interactionally create narrative by recruiting discourse skills that are most readily available to them. The study reveals that narrators in conversational settings employ reference (i.e. use of noun phrases and anaphors) and macropropositions following a general pattern. Generally, episode boundaries are marked both by macropropositions and full noun phrases. Noun phrases are often used to indicate the beginning of an episode, whereas pronominals are often used within episode boundaries suggesting the continuation of the current episode. The co-occurrence of macropropositions and NPs in demarcating episodic boundaries reflects the bidirectional process operating simultaneously within the linguistic and conceptual domains that is involved in the production of narratives. The use of pronominals within the episode boundaries indicates that cognitive mechanisms such as sustaining attention is also involved in demarcation of episodic boundaries.