In the recently discovered sound-induced illusory flash phenomenon, a single flash accompanied with two auditory beeps is perceived as two flashes in a majority of trials. Here we asked what the neural substrates distinguishing illusion and no-illusion (i.e. perception of single flash) percepts are under identical stimulus configuration. Wavelet based method was used to analyze γ band (> 30 Hz) responses in the event-related potential (ERP) signals recorded over visual cortical regions. We found: (i) significantly higher oscillatory and induced γ band responses in illusion than in no-illusion trials, and (ii) significant supra-additive audio-visual interactions only in illusion trials. These results provide a clear neurophysiological correlate to the perception of illusion. Furthermore, the results suggest that auditory stimuli modulate cortical processing of visual stimuli, and the flash illusion (qualitative alteration of visual percept) only takes place when this modulation exceeds some critical threshold for the registration of conscious awareness.