A common stylistic element of Western tonal music is the change of key within a musical sequence (known as modulation in musical terms). The aim of the present study was to investigate neural correlates of the cognitive processing of modulations with event-related brain potentials. Participants listened to sequences of chords that were infrequently modulating. Modulating chords elicited distinct effects in the event-related brain potentials: an early right anterior negativity reflecting the processing of a violation of musical regularities and a late frontal negativity taken to reflect processes of harmonic integration. Additionally, modulations elicited a tonic negative potential suggested to reflect cognitive processes characteristic for the processing of tonal modulations, namely, the restructuring of the “hierarchy of harmonic stability” (which specifies musical expectations), presumably entailing working memory operations. Participants were “nonmusicians”; results thus support the hypothesis that nonmusicians have a sophisticated (implicit) knowledge about musical regularities.