To be immersed in a virtual environment, the user must be presented with plausible sensory input including auditory cues. A virtual (three-dimensional) audio display aims to allow the user to perceive the position of a sound source at an arbitrary position in three-dimensional space despite the fact that the generated sound may be emanating from a fixed number of loudspeakers at fixed positions in space or a pair of headphones. The foundation of virtual audio rests on the development of technology to present auditory signals to the listener's ears so that these signals are perceptually equivalent to those the listener would receive in the environment being simulated. This paper reviews the human perceptual and technical literature relevant to the modeling and generation of accurate audio displays for virtual environments. Approaches to acoustical environment simulation are summarized and the advantages and disadvantages of the various approaches are presented.