Visual illusions and hallucinations are hallmarks of serotonergic hallucinogen-induced altered states of consciousness. Although the serotonergic hallucinogen psilocybin activates multiple serotonin (5-HT) receptors, recent evidence suggests that activation of 5-HT2A receptors may lead to the formation of visual hallucinations by increasing cortical excitability and altering visual-evoked cortical responses. To address this hypothesis, we assessed the effects of psilocybin (215 μg/kg vs placebo) on both α oscillations that regulate cortical excitability and early visual-evoked P1 and N170 potentials in healthy human subjects. To further disentangle the specific contributions of 5-HT2A receptors, subjects were additionally pretreated with the preferential 5-HT2A receptor antagonist ketanserin (50 mg vs placebo). We found that psilocybin strongly decreased prestimulus parieto-occipital α power values, thus precluding a subsequent stimulus-induced α power decrease. Furthermore, psilocybin strongly decreased N170 potentials associated with the appearance of visual perceptual alterations, including visual hallucinations. All of these effects were blocked by pretreatment with the 5-HT2A antagonist ketanserin, indicating that activation of 5-HT2A receptors by psilocybin profoundly modulates the neurophysiological and phenomenological indices of visual processing. Specifically, activation of 5-HT2A receptors may induce a processing mode in which stimulus-driven cortical excitation is overwhelmed by spontaneous neuronal excitation through the modulation of α oscillations. Furthermore, the observed reduction of N170 visual-evoked potentials may be a key mechanism underlying 5-HT2A receptor-mediated visual hallucinations. This change in N170 potentials may be important not only for psilocybin-induced states but also for understanding acute hallucinatory states seen in psychiatric disorders, such as schizophrenia and Parkinson's disease.