Sound location processing in the human auditory cortex was studied with magnetoencephalography (MEG) by producing spatial stimuli using a modern stimulus generation methodology utilizing head-related transfer functions (HRTFs). The stimulus set comprised wideband noise bursts filtered through HRTFs in order to produce natural spatial sounds. Neuromagnetic responses for stimuli representing eight equally spaced sound source directions in the azimuthal plane were measured from 10 subjects. The most prominent response, the cortically generated N1m, was investigated above the left and right hemisphere. We found, firstly, that the HRTF-based stimuli presented from different directions elicited contralaterally prominent N1m responses. Secondly, we found that cortical activity reflecting the processing of spatial sound stimuli was more pronounced in the right than in the left hemisphere.