Both electroencephalography (EEG) and magnetoencephalography (MEG) are currently used to localize brain activity. The accuracy of source localization depends on numerous factors, including the specific inverse approach and source model, fundamental differences in EEG and MEG data, and the accuracy of the volume conductor model of the head (i.e., the forward model). Using Monte Carlo simulations, this study removes the effect of forward model errors and theoretically compares the use of EEG alone, MEG alone, and combined EEG/MEG data sets for source localization. Here, we use a linear estimation inverse approach with a distributed source model and a realistic forward head model. We evaluated its accuracy using the crosstalk and point spread metrics. The crosstalk metric for a specified location on the cortex describes the amount of activity incorrectly localized onto that location from other locations. The point spread metric provides the complementary measure: for that same location, the point spread describes the mis-localization of activity from that specified location to other locations in the brain. We also propose and examine the utility of a “noise sensitivity normalized” inverse operator. Given our particular forward and inverse models, our results show that 1) surprisingly, EEG localization is more accurate than MEG localization for the same number of sensors averaged over many source locations and orientations; 2) as expected, combining EEG with MEG produces the best accuracy for the same total number of sensors; 3) the noise sensitivity normalized inverse operator improves the spatial resolution relative to the standard linear estimation operator; and 4) use of an a priori fMRI constraint universally reduces both crosstalk and point spread. Hum. Brain Mapping 16:47–62, 2002. © 2002 Wiley-Liss, Inc.