Despite myriad studies, neurophysiologic mechanisms mediating illusory contour (IC) sensitivity remain controversial. Among the competing models one favors feed-forward effects within lower-tier cortices (V1/V2). Another situates IC sensitivity first within higher-tier cortices, principally lateral-occipital cortices (LOC), with later feedback effects in V1/V2. Still others postulate that LOC are sensitive to salient regions demarcated by the inducing stimuli, whereas V1/V2 effects specifically support IC sensitivity. We resolved these discordances by using misaligned line gratings, oriented either horizontally or vertically, to induce ICs. Line orientation provides an established assay of V1/V2 modulations independently of IC presence, and gratings lack salient regions. Electrical neuroimaging analyses of visual evoked potentials (VEPs) disambiguated the relative timing and localization of IC sensitivity with respect to that for grating orientation. Millisecond-by-millisecond analyses of VEPs and distributed source estimations revealed a main effect of grating orientation beginning at 65 ms post-stimulus onset within the calcarine sulcus that was followed by a main effect of IC presence beginning at 85 ms post-stimulus onset within the LOC. There was no evidence for differential processing of ICs as a function of the orientation of the grating. These results support models wherein IC sensitivity occurs first within the LOC.