This article provides a summary of current knowledge about memory illusions. The memory illusions described here focus on the recall of imagined events that have never actually occurred. The purpose is to review theoretical ideas and empirical evidence about the reality monitoring processes involved in memory illusions. Reality monitoring means deciding whether the memory has been perceptually derived or been self-generated (thought or imagined). A few key findings from the literature have been reported in this paper and these focus on internal source monitoring judgements which distinguish perceptual events from imagined events. Finally, the experimental paradigms used to shed light on processes occurring in the failure of reality monitoring in healthy subjects may be extended to an examination of the causes and the prevention of hallucinations in patients.