Our sensory systems are simultaneously activated as the result of our own actions and changes in the external world. The ability to distinguish self-generated sensory events from those that arise externally is thus essential for perceptual stability and accurate motor control. Recently, progress has been made towards understanding how this distinction is made. It has been proposed that an internal prediction of the consequences of our actions is compared to the actual sensory input to cancel the resultant self-generated activation. Evidence in support of this hypothesis has been obtained for early stages of sensory processing in the vestibular, visual and somatosensory systems. These findings have implications for the sensory-motor transformations that are needed to guide behavior.