Many patients with schizophrenia report hallucinations in which they hear voices talking to them or about them. Behavioural and physiological studies show that this experience is associated with processes occurring in auditory language systems associated with both the production and the reception of speech. I propose that hallucinations are experienced because patients have difficulty in distinguishing sensations caused by their own actions from those that arise from external influences. This distinction can be made by predicting the sensations that will result from executive commands (forward modelling). If the predicted sensation matches the actual sensation then no outside influences have occurred and perception of change can be 'cancelled'. At the physiological level this mechanism depends upon interactions between the prefrontal areas where the executive commands originate and posterior brain regions concerned with the resultant sensations. Evidence from functional brain imaging confirms that interactions between prefrontal (executive) areas and auditory association areas are abnormal in schizophrenia. However, this account needs to be extended before we can understand why patients experience the voices as emanating, not just from an external source, but from agents who are trying to influence their behaviour. Recent imaging studies suggest that medial prefrontal cortex is engaged when we think about other people, but the precise nature of the interaction of this brain area with other regions remains to be established.