Performing actions with auditory consequences modulates the response in auditory cortex to otherwise identical stimuli passively heard. Such modulation has been suggested to occur through a corollary discharge sent from the motor cortex during voluntary actions. However, the relationship between the effector used to generate the sound, type of modulation and changes in perceptual sensitivity are unclear. Here we use functional magnetic resonance imaging on healthy subjects and demonstrate bilateral enhancement in the auditory cortex to self-generated versus externally generated sounds. Furthermore, we find that this enhancement is stronger when the sound-producing hand is contralateral to the auditory cortex. At the behavioural level, binaural hearing thresholds are lower for self-generated sounds and monaural thresholds are lower for sounds triggered by the hand ipsilateral to the stimulated ear. Together with functional connectivity analysis, our results suggest that a corollary discharge sent from active motor cortex enhances activity in the auditory cortex and increases perceptual sensitivity in a lateralized manner.