We recorded 128-channel EEG from 16 participants while they observed, imitated, and self-initiated the precision grip of a manipulandum. Mu rhythm amplitudes were significantly lower during observation of a precision grip than during observation of a simple hand extension without object interaction. Scalp topographies for subtractions of observation, imitation, and execution conditions from the control condition showed a high degree of congruence, supporting the notion of a human observation-execution matching system. Surface Laplacian transformations suggest that the decrease in mu amplitude during precision grip observation reflects desynchronization of mu rhythm generators in the sensorimotor cortex. These results support the hypothesis that sensorimotor cortex is a neural substrate involved in the representation of both self- and other-generated actions and show the mu rhythm is sensitive to subtle changes in observed motor behavior.