Neural oscillatory dynamics are a candidate mechanism to steer perception of time and temporal rate change. While oscillator models of time perception are strongly supported by behavioral evidence, a direct link to neural oscillations and oscillatory entrainment has not yet been provided. In addition, it has thus far remained unaddressed how context-induced illusory percepts of time are coded for in oscillator models of time perception. To investigate these questions, we used magnetoencephalography and examined the neural oscillatory dynamics that underpin pitch-induced illusory percepts of temporal rate change. Human participants listened to frequency-modulated sounds that varied over time in both modulation rate and pitch, and judged the direction of rate change (decrease vs increase). Our results demonstrate distinct neural mechanisms of rate perception: Modulation rate changes directly affected listeners' rate percept as well as the exact frequency of the neural oscillation. However, pitch-induced illusory rate changes were unrelated to the exact frequency of the neural responses. The rate change illusion was instead linked to changes in neural phase patterns, which allowed for single-trial decoding of percepts. That is, illusory underestimations or overestimations of perceived rate change were tightly coupled to increased intertrial phase coherence and changes in cerebro-acoustic phase lag. The results provide insight on how illusory percepts of time are coded for by neural oscillatory dynamics.