We used functional magnetic resonance imaging to study the neural processing of vowels whose perception depends on the continuity illusion. Participants heard sequences of two-formant vowels under a number of listening conditions. In the “vowel conditions,” both formants were always present simultaneously and the stimuli were perceived as speech-like. Contrasted with a range of nonspeech sounds, these vowels elicited activity in the posterior middle temporal gyrus (MTG) and superior temporal sulcus (STS). When the two formants alternated in time, the “speech-likeness” of the sounds was reduced. It could be partially restored by filling the silent gaps in each formant with bands of noise (the “Illusion” condition) because the noise induced an illusion of continuity in each formant region, causing the two formants to be perceived as simultaneous. However, this manipulation was only effective at low formant-to-noise ratios (FNRs). When the FNR was increased, the illusion broke down (the “illusion-break” condition). Activation in vowel-sensitive regions of the MTG was greater in the illusion than in the illusion-break condition, consistent with the perception of Illusion stimuli as vowels. Activity in Heschl's gyri (HG), the approximate location of the primary auditory cortex, showed the opposite pattern, and may depend instead on the number of perceptual onsets in a sound. Our results demonstrate that speech-sensitive regions of the MTG are sensitive not to the physical characteristics of the stimulus but to the perception of the stimulus as speech, and also provide an anatomically distinct, objective physiological correlate of the continuity illusion in human listeners.