Between 8 and 40% of Parkinson disease (PD) patients will have visual hallucinations (VHs) during the course of their illness. Although cognitive impairment has been identified as a risk factor for hallucinations, more specific neuropsychological deficits underlying such phenomena have not been established. Research in psychopathology has converged to suggest that hallucinations are associated with confusion between internal representations of events and real events (i.e. impaired-source monitoring). We evaluated three groups: 17 Parkinson's patients with visual hallucinations, 20 Parkinson's patients without hallucinations and 20 age-matched controls, using tests of visual imagery, visual perception and memory, including tests of source monitoring and recollective experience. The study revealed that Parkinson's patients with hallucinations appear to have intact visual imagery processes and spatial perception. However, there were impairments in object perception and recognition memory, and poor recollection of the encoding episode in comparison to both non-hallucinating Parkinson's patients and healthy controls. Errors were especially likely to occur when encoding and retrieval cues were in different modalities. The findings raise the possibility that visual hallucinations in Parkinson's patients could stem from a combination of faulty perceptual processing of environmental stimuli, and less detailed recollection of experience combined with intact image generation.