To elucidate the roles of visual areas V1 and V2 and their interaction in early perceptual processing, we studied the responses of V1 and V2 neurons to statically displayed Kanizsa figures. We found evidence that V1 neurons respond to illusory contours of the Kanizsa figures. The illusory contour signals in V1 are weaker than in V2, but are significant, particularly in the superficial layers. The population averaged response to illusory contours emerged 100 msec after stimulus onset in the superficial layers of V1, and around 120--190 msec in the deep layers. The illusory contour response in V2 began earlier, occurring at 70 msec in the superficial layers and at 95 msec in the deep layers. The temporal sequence of the events suggests that the computation of illusory contours involves intercortical interaction, and that early perceptual organization is likely to be an interactive process.