When inverted, thatcherized faces appear normal. This may be due to a decrease in configural and an increase in featural processing. It is not known whether this processing is continuous or reflects two distinct processing systems. Using event-related potentials (ERPs), we investigated the Thatcher effect on thatcherized and normal faces at varying orientations. The ERPs paralleled the perceptual illusion. The effect of thatcherization on upright faces was visible in P1 and N170 ERP components, possibly reflecting attentional engagement due to unpleasantness of thatcherized faces. Effects were also found over two later components, the P250 component, which has been related to configural recognition, and a late parietal component possibly reflecting featural processing. The effect of thatcherization on the two later components decreased gradually (for the P250 component) and abruptly (for the late parietal component) as the faces were rotated away from the upright.