The sense of touch is not restricted to the body but can also extend to external objects. When we use a handheld tool to contact an object, we feel the touch on the tool and not in the hand holding the tool. The ability to perceive touch on a tool actually extends along its entire surface, allowing the user to accurately localize where it is touched similarly as they would on their body. Although the neural mechanisms underlying the ability to localize touch on the body have been largely investigated, those allowing to localize touch on a tool are still unknown. We aimed to fill this gap by recording the electroencephalography signal of participants while they localized tactile stimuli on a handheld rod. We focused on oscillatory activity in the alpha (7–14 Hz) and beta (15–30 Hz) ranges, as they have been previously linked to distinct spatial codes used to localize touch on the body. Beta activity reflects the mapping of touch in skin-based coordinates, whereas alpha activity reflects the mapping of touch in external space. We found that alpha activity was solely modulated by the location of tactile stimuli applied on a handheld rod. Source reconstruction suggested that this alpha power modulation was localized in a network of fronto-parietal regions previously implicated in higher-order tactile and spatial processing. These findings are the first to implicate alpha oscillations in tool-extended sensing and suggest an important role for processing touch in external space when localizing touch on a tool.