Several lines of research have demonstrated that internally generated sensory experience - such as during memory, dreaming and mental imagery - activates similar neural representations as externally triggered perception. This overlap raises a fundamental challenge: how is the brain able to keep apart signals reflecting imagination and reality? In a series of online psychophysics experiments combined with computational modelling, we investigated to what extent imagination and perception are confused when the same content is simultaneously imagined and perceived. We found that simultaneous congruent mental imagery consistently led to an increase in perceptual presence responses, and that congruent perceptual presence responses were in turn associated with a more vivid imagery experience. Our findings can be best explained by a simple signal detection model in which imagined and perceived signals are added together. Perceptual reality monitoring can then easily be implemented by evaluating whether this intermixed signal is strong or vivid enough to pass a ‘reality threshold’. Our model suggests that, in contrast to self-generated sensory changes during movement, our brain does not discount self-generated sensory signals during mental imagery. This has profound implications for our understanding of reality monitoring and perception in general.