Optically-pumped magnetometers (OPMs) have recently reached sensitivity levels that enable their use in magnetoencephalography (MEG). In contrast to the SQUID sensors used in current MEG systems, OPMs do not require cryogenic cooling and can thus be placed within millimetres from the head, enabling the construction of on-scalp sensor arrays that conform to the shape of the head. To properly estimate the location of neural sources within the brain, one must accurately know the position and orientation of sensors in relation to the head. With the adaptable on-scalp MEG sensor arrays, this coregistration becomes more challenging than in current SQUID-based MEG systems that use rigid sensor arrays.Here, we used simulations to quantify how accurately one needs to know the position and orientation of sensors in an on-scalp MEG system, and how different types of localisation errors affect forward modelling and source estimates obtained by minimum-norm estimation and dipole fitting.We found that sensor position errors generally have a larger effect than orientation errors and that these errors affect the localisation accuracy of superficial sources the most. Based on our results, we propose < 4-mm RMS sensor position and < 10• RMS sensor orientation error levels as a requirement for source estimation with the above-mentioned methods in on-scalp MEG to obtain similar or higher accuracy than with current SQUID-based MEG systems.