Human listeners were functionally imaged while reporting their perception of sequences of alternating-frequency tone bursts separated by 0, 1/8, 1, or 20 semitones. Our goal was to determine whether functional magnetic resonance imaging (fMRI) activation of auditory cortex changes with frequency separation in a manner predictable from the perceived rate of the stimulus. At the null and small separations, the tones were generally heard as a single stream with a perceived rate equal to the physical tone presentation rate. fMRI activation in auditory cortex was appreciably phasic, showing prominent peaks at the sequence onset and offset. At larger-frequency separations, the higher- and lower-frequency tones perceptually separated into two streams, each with a rate equal to half the overall tone presentation rate. Under those conditions, fMRI activation in auditory cortex was more sustained throughout the sequence duration and was larger in magnitude and extent. Phasic to sustained changes in fMRI activation with changes in frequency separation and perceived rate are comparable to, and consistent with, those produced by changes in the physical rate of a sequence and are far greater than the effects produced by changing other physical stimulus variables, such as sound level or bandwidth. We suggest that the neural activity underlying the changes in fMRI activation with frequency separation contribute to the coding of the co-occurring changes in perceived rate and perceptual organization of the sound sequences into auditory streams.