Dividing auditory sequence into groups, or imposing rhythmic, tonal, or spatial structure during presentation, improves recall performance. Several competing computational models have been proposed to account for these effects, but little is known about the neural correlates of grouping and hence the representations that encode grouped sequences. The present study used functional magnetic resonance imaging (fMRI) to compare the auditory encoding of grouped and ungrouped lists of sub-span (six letters) and supra-span (nine letters) length in an immediate serial recall (ISR) task. Analysis of activation revealed an extensive premotor and prefrontal network, which was significantly less active when short-term memory (STM) span was exceeded during encoding. Only primary auditory cortex showed an increase in activation when memory span was exceeded. Comparison of activation for grouped and ungrouped lists showed that during the subspan phase bilateral planum temporale showed less activation for grouped stimuli, while during the supra-span phase supramarginal and inferior parietal areas were more active for grouped lists. The magnitude of both temporal and parietal activations predicted enhanced recall of grouped lists. Thus neural signatures of grouping seem to reflect more structured processing in parietal areas instead of reliance on perceptual-auditory processing in temporal regions.