Electrical impedance tomography (EIT) is a recently developed technique which enables the internal conductivity of an object to be imaged using rings of external electrodes. In a recent study, EIT during cortical evoked responses showed encouraging changes in the raw impedance measurements, but reconstructed images were noisy. A simplified reconstruction algorithm was used which modelled the head as a homogeneous sphere. In the current study, the development and validation of an improved reconstruction algorithm are described in which realistic geometry and conductivity distributions have been incorporated using the finite element method. Data from computer simulations and spherical or head-shaped saline-filled tank phantoms, in which the skull was represented by a concentric shell of plaster of Paris or a real human skull, have been reconstructed into images. There were significant improvements in image quality as a result of the incorporation of accurate geometry and extracerebral layers in the reconstruction algorithm. Image quality, assessed by blinded subjective expert observers, also improved significantly when data from the previous evoked response study were reanalysed with the new algorithm. In preliminary images collected during epileptic seizures, the new algorithm generated EIT conductivity changes which were consistent with the electrographic ictal activity. Incorporation of realistic geometry and conductivity into the reconstruction algorithm significantly improves the quality of EIT images and lends encouragement to the belief that EIT may provide a low-cost, portable functional neuroimaging system in the foreseeable future.