When a single brief visual flash is accompanied by two auditory bleeps, it is frequently perceived incorrectly as two flashes. Here, we used high field functional MRI in humans to examine the neural basis of this multisensory perceptual illusion. We show that activity in retinotopic visual cortex is increased by the presence of concurrent auditory stimulation, irrespective of any illusory perception. However, when concurrent auditory stimulation gave rise to illusory visual perception, activity in V1 was enhanced, despite auditory and visual stimulation being unchanged. These findings confirm that responses in human V1 can be altered by sound and show that they reflect subjective perception rather than the physically present visual stimulus. Moreover, as the right superior temporal sulcus and superior colliculus were also activated by illusory visual perception, together with V1, they provide a potential neural substrate for the generation of this multisensory illusion.