The brain is constantly faced with the challenge of organizing acoustic input from multiple sound sources into meaningful auditory objects or perceptual streams. The present study examines the neural bases of auditory stream formation using neuromagnetic and behavioral measures. The stimuli were sequences of alternating pure tones, which can be perceived as either one or two streams. In the first experiment, physical stimulus parameters were varied between values that promoted the perceptual grouping of the tone sequence into one coherent stream and values that promoted its segregation into two streams. In the second experiment, an ambiguous tone sequence produced a bistable percept that switched spontaneously between one- and two-stream percepts. The first experiment demonstrated a strong correlation between listeners' perception and long-latency (>60 ms) activity that likely arises in nonprimary auditory cortex. The second demonstrated a covariation between this activity and listeners' perception in the absence of physical stimulus changes. Overall, the results indicate a tight coupling between auditory cortical activity and streaming perception, suggesting that an explicit representation of auditory streams may be maintained within nonprimary auditory areas.