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Using functional MRI, we investigated reality monitoring for auditory information. During scanning, healthy young adults heard words in another person’s voice and imagined hearing other words in that same voice. Later, outside the scanner, participants judged words as “heard,” “imagined,” or “new.” An area of left middle frontal gyrus (Brodmann’s area, or BA, 6) was more active at encoding for imagined items subsequently correctly called “imagined” than for items incorrectly called “heard.” An area of left inferior frontal gyrus (BA 45, 44) was more active at encoding for items subsequently called “heard” than “imagined,” regardless of the actual source of the item. Scores on an Auditory Hallucination Experience Scale were positively related to activity in superior temporal gyrus (BA 22) for imagined words incorrectly called “heard.” We suggest that activity in these areas reflects cognitive operations information (middle frontal gyrus) and semantic and perceptual detail (inferior frontal gyrus and superior temporal gyrus, respectively) used to make reality-monitoring attributions.