Although the resting and baseline states of the human electroencephalogram and magnetoencephalogram (MEG) are dominated by oscillations in the alpha band (approximately 10 Hz), the functional role of these oscillations remains unclear. In this study we used MEG to investigate how spontaneous oscillations in humans presented before visual stimuli modulate visual perception. Subjects had to report if there was a subtle difference in gray levels between two superimposed presented discs. We then compared the prestimulus brain activity for correctly (hits) versus incorrectly (misses) identified stimuli. We found that visual discrimination ability decreased with an increase in prestimulus alpha power. Given that reaction times did not vary systematically with prestimulus alpha power changes in vigilance are not likely to explain the change in discrimination ability. Source reconstruction using spatial filters allowed us to identify the brain areas accounting for this effect. The dominant sources modulating visual perception were localized around the parieto-occipital sulcus. We suggest that the parieto-occipital alpha power reflects functional inhibition imposed by higher level areas, which serves to modulate the gain of the visual stream.