Abstract: What we perceive is the product of an intrinsic process and not part of external physical reality. This notion is consistent with the philosophical position of transcendental idealism but also agrees with physiological findings on the thalamocortical system. -Frequency rhythms of discharge activity from thalamic and cortical neurons are facilitated by cholinergic arousal and resonate in thalamocortical networks, thereby transiently forming assemblies of coherent oscillations under constraints of sensory input and prefrontal attentional mechanisms. Perception and conscious experience may be based on such assemblies and sensory input to thalamic nuclei plays merely a constraining role in their formation. In schizophrenia, the ability of sensory input to modulate self-organisation of thalamocortical activity may be generally reduced. If during arousal thalamocortical self-organisation is underconstrained by sensory input, then attentional mechanisms alone may determine the content of perception and hallucinations may arise