Illusions are effective tools for the study of the neural mechanisms underlying perception because neural responses can be correlated to the physical properties of stimuli and the subject's perceptions. The Franssen illusion (FI) is an auditory spatial illusion evoked by presenting a transient, abrupt tone and a slowly rising, sustained tone of the same frequency simultaneously on opposite sides of the subject. Perception of the FI consists of hearing a single sound, the sustained tone, on the side that the transient was presented. Both subcortical and cortical mechanisms for the FI have been proposed, but, to date, there is no direct evidence for either. The data show that humans and rhesus monkeys perceive the FI similarly. Recordings were taken from single units of the inferior colliculus in the monkey while they indicated the perceived location of sound sources with their gaze. The results show that the transient component of the Franssen stimulus, with a shorter first spike latency and higher discharge rate than the sustained tone, encodes the perception of sound location. Furthermore, the persistent erroneous perception of the sustained stimulus location is due to continued excitation of the same neurons, first activated by the transient, by the sustained stimulus without location information. These results demonstrate for the first time, on a trial-by-trial basis, a correlation between perception of an auditory spatial illusion and a subcortical physiological substrate.